By William L. Watts and Victor Reklaitis, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks settled with modest gains
Monday as investors took a cue from upbeat earnings and shook off
fears the market is overdue for a correction.
The S&P 500 (SPX) rose 6.29 points, or 0.4%, to close at
1,767.93, not far from the all-time closing high of 1,771.95 set
early last week. The Dow Jones Industrial Average (DJI) shook off
earlier weakness to advance 23.57 points, or 0.2%, to
15,639.12.
The Nasdaq Composite(RIXF) gained 14.55 points, or 0.4%, to
3,936.59.
A "stretched" valuation for the S&P 500 indicates further
gains will be sluggish, said analysts at futures broker R.J.
O'Brien in Chicago.
"We still look for a generally rising stock market into 2014,
but there is likely to be a lot of sideways action with only a
modest upward bias. The medium-term earnings outlook looks
positive, but the S&P 500 is already trading at the relatively
rich level of 15.9 times forward earnings. That is well above the
five-year average of 14.0 and the 10-year average of 14.8," they
wrote in a note.
"Due to stretched valuations, we believe the stock market will
only be able to climb as fast as earnings grow," the R.J. O'Brien
analysts said, adding that the "good news" is that the market is
looking for strong earnings growth of 11.3% in 2014 after growth of
only 5.8% this year.
Investors are also trying to gauge when the Federal Reserve will
begin to slow the pace of monetary stimulus.
"The market's Kryptonite is early taper talk at the moment, and
this first full week of November has the potential for it to be
hurled at it from all directions," said Jim Reid, strategist at
Deutsche Bank.
St. Louis Federal Reserve Bank President James Bullard told CNBC
that the Federal Reserve did not have to be in a "hurry" to pare
its $85 billion-a-month in bond purchases, because inflation is
low. But Bullard also made several comments that suggested a taper
could come soon.
U.S. factory orders for September rose 1.7%. That met the
consensus forecast from a MarketWatch poll of economists. Other
surveys called for a 1.8% gain.
In other Fed news, Dallas Fed President Richard Fisher suggested
in Sydney on Monday that tapering of bond buys could come sooner
than expected, and that fiscal risks shouldn't stop the Fed from
doing what is right for the economy. Late Monday, Boston Fed
President Eric Rosengren, a voting member of the Fed's
policy-making arm, said a delay in the reduction of the bond-buying
program from December to April would make only a small difference
to the overall size of the central bank's balance sheet.
A strong October for stocks, with the S&P 500 gaining 4.5%
and hitting record highs, has left some strategists cautious. "The
outsized gains the stock market enjoyed in October [...] suggest a
pause is likely before the year-end rally continues," said Bruce
Bittles, chief investment strategist at Robert W. Baird & Co.,
in a note on Monday. Bittles and other strategists say the
principal driver for stocks continues to be Fed policy. (Read more:
The next pain trade involves March taper assumptions
http://blogs.marketwatch.com/thetell/2013/11/04/the-next-pain-trade-involves-march-taper-assumptions-b-of-a/.).
Others note that, historically, strong year-to-date gains
through October have tended to point to further gains for equities
in November and December.
Among blue chips, shares of Visa Inc. (V), down 1.4%, and Du
Pont (DD), down 1.3%, were the biggest losers. DuPont had gained
ground last week after it said it would spin off its performance
chemicals unit to existing shareholders.
Fellow Dow component Johnson & Johnson (JNJ) fell 0.4% after
the company said it would pay around $2 billion to settle a Justice
Department probe into the marketing of antipsychotic drug Riperdal.
The company will plead guilty to a misdemeanor, officials said.
Exxon Mobil Corp. (XOM) was the Dow's top gainer, advancing 2.5%
and tracking gains in the energy sector.
Elsewhere, shares of BlackBerry Ltd. (RIMM) fell more than 16%
on news the ailing smartphone maker has abandoned a plan to sell
itself. BlackBerry said it would replace Chief Executive Thorsten
Heins and receive a $1 billion investment from institutional
investors. See: BlackBerry tries to keep the lights on.
Kellogg Co. (K) rose 0.7% after the cereal maker reported
earnings and said it would cut its workforce by 7% by the end of
2017.
Twitter Inc. (TWTR) on Monday raised the price range for its
initial public offering a few days before its trading debut.
Twitter set a range of $23 to $25 a share, versus its previous
target of $17 to $20. The move drew mixed reactions, with one
skeptic warning of an "overvaluation challenge" that recalled the
hype that surrounded Facebook Inc.'s (FB) troubled public debt last
year.
Steel makers rose after analysts at Goldman Sachs upgraded their
view on the sector to neutral from cautious and upgraded the shares
of individual steel makers. Goldman lifted AK Steel Holding Corp.
(AKS) and United States Steel Corp. (X) to buy from sell and raised
Steel Dynamics Inc. (STLD) to buy from neutral. AK Steel shares
rose 8.7%, while United States Steel advanced 4.4% and Steel
Dynamics gained 2.2%. Also, Goldman downgraded Reliance Steel &
Aluminum Co. (RS) to neutral from buy. Shares rose 0.2%.
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