The prospect of more economic stimulus from the Federal Reserve and upbeat corporate earnings pushed the SP 500 further into record territory Tuesday.
The Standard Poor’s 500 index (^GPSC) gained 10 points, or 0.6 percent, to 1,754, after reaching as high as 1,759 earlier in the session. The Dow Jones industrial average (^DJI) rose 75 points, or 0.5 percent, to 15,467, and the Nasdaq composite index (^IXIC) 9 points, or 0.4 percent, at 3,929.
The U.S. economy added 148,000 jobs in September, the Labor Department said. That suggests employers held back on hiring before a 16-day partial government shutdown began Oct. 1. Economist surveyed by data provider FactSet had predicted 180,000 jobs would be added.
September’s job report was delayed 2½ weeks because of the shutdown, which may have further depressed economic growth and hiring. Analysts are also expecting the coming October’s job report to be weak because of the impact of the shutdown and that means the Fed is unlikely to stop its stimulus effort anytime soon.
The Federal Reserve has been buying $85 billion of bonds a month to keep long-term interest rates low and spur economic growth. The central bank’s stimulus has been a key support for a 4½-year rally in stocks.
Apple (AAPL) unveiled a new, thinner, lighter tablet called the “iPad Air” along with a slew of new Macs ahead of the holiday shopping season.
The company also said that its latest computer operating system, Mavericks, is available free of charge. The Cupertino, Calif., company made the announcements Tuesday at an event in San Francisco. The iPad Air will go on sale Nov. 1 and start at $499, while the iPad 2 will continue selling at $399. A new iPad Mini, meanwhile, will be available later in November starting at $399 for a 16-gigabyte model.
The housing sector rebounded after a slump Monday on a report showed that Americans bought fewer previously occupied homes in September than the previous month, held back by higher mortgage rates and rising prices. Stocks of homebuilders rose. KB Home (KBH) rose 3.7 percent to $17.18, D.R. Horton (DHI) climbed 3 percent to $19.23 and Toll Brothers (TOL) added 2.5 percent to $32.65.
In commodities trading, oil fell further following losses Monday. Benchmark crude for December delivery slipped $1.63, or 1.6 percent, to $97.59. Meanwhile, gold picked up $26.80, or 2 percent, to end at a 3-week high of $1,342.50
In other corporate news, Amazon.com (AMZN) raised the minimum order size needed for free shipping to $35 from $25. The change, made Monday, comes ahead of the busy holiday shopping season. It also comes after Walmart.com (WMT) made a similar change earlier this month.
Netflix shares fell 9.2 percent to $332.52, reversing the rise that followed the release of the company’s earnings report Monday. Volume in the stock spiked as it fell into negative territory on the day. With more than 17 million shares traded, volume was nearly six times the average over the last 50 days.
More Stocks in the News:
- Whirlpool (WHR) rose 11.6 percent to $146.19 after the company said its third-quarter net income more than doubled, benefiting from some tax credits as consumer demand for its appliances continues to build amid the housing recovery.
- Delta Air Lines (DAL) gained 3.2 percent to $25.49. The airline made more than a billion dollars in the third quarter as more passengers paid a little bit extra to fly. Delta also said it was seeing strong holiday bookings.
- Kimberly-Clark (KMB) ticked up 4.2 percent to $102.97 after the maker of Kleenex tissues and Huggies diapers said its third-quarter net income rose 6 percent.
- Coach (COH) fell 7.5 percent to $50.10 after the maker of luxury handbags and accessories said its net income fell 2 percent in its fiscal first quarter as the company dealt with weaker sales in North America. The earnings fell short of analyst expectations.
- Transocean (RIG) shares rose 6 percent to $49.35 after SP Dow Jones Indices announced the drilling services company will replace Dell (DELL) on the SP 500 index after the close of trading next Monday.
- Shares of cloud software maker VMware (VMW) rose 2.8 percent to $85, a day after it reported a higher-than-expected quarterly profit.
- Annie’s (BNNY) dropped 8.3 percent to $47.53 after the natural and organic food maker said it now foresees its fiscal 2014 adjusted earnings coming in at the lower end of its forecast.
- Cardiovascular Systems (CSII) soared 17.7 percent to $26.75 after the company said the Food and Drug Administration granted the company approval to market its Diamondback 360 coronary atherectomy system as a treatment for severely calcified coronary arteries.
- QEP Resources rose to its highest point in more than a year after activist hedge fund disclosed a stake in the oil and gas company and said that it would seek QEP’s breakup. QEP (QEP) shares rose 5.8 percent to $32.90, after reaching an intraday high of $34.13.
What to Watch Wednesday:
- The Labor Department reports import and export prices for September at 8:30 a.m. Eastern time.
- The Federal Housing Finance Agency releases its house price index for August at 9 a.m.
These major companies are scheduled to report quarterly corporate earnings:
- ATT (T)
- Boeing (BA)
- Bristol-Myers Squibb (BMY)
- Caterpillar (T)
- Eli Lilly (LLY)
- Norfolk Southern (NSC)
- WellPoint (WLP)
- US Airways Group (LCC)
–Compiled from staff and wire reports.
Warren Buffett is a great investor, but what makes him rich is that he’s been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.
Most people don’t start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That’s unfortunate, and there’s no way to fix it retroactively. It’s a good reminder of how important it is to teach young people to start saving as soon as possible.
Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That’s really all there is to it.
The dividend yield we know: It’s currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That’s totally unknowable.
Earnings multiples reflect people’s feelings about the future. And there’s just no way to know what people are going to think about the future in the future. How could you?
If someone said, “I think most people will be in a 10% better mood in the year 2023,” we’d call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.
Someone who bought a low-cost SP 500 index fund in 2003 earned a 97% return by the end of 2012. That’s great! And they didn’t need to know a thing about portfolio management, technical analysis, or suffer through a single segment of “The Lighting Round.”
Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return — still short of an index fund.
Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it’s not like golf: The spectators have a pretty good chance of humbling the pros.
Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time — every single time — there’s even a hint of volatility, the same cry is heard from the investing public: “What is going on?!”
Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.
Since 1900 the SP 500 (^GSPC) has returned about 6% per year, but the average difference between any year’s highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.
Someone once asked J.P. Morgan what the market will do. “It will fluctuate,” he allegedly said. Truer words have never been spoken.
The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.
You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he’ll receive, even though it makes him more likely to be wrong.
This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.
“Everything else is cream cheese.”