The stock markets in the United States suffered a significant decline today as investors review the valuations of equities and future expectations regarding the monthly bond-buying program of the Federal reserve.
Data compiled by Bloomberg showed the U.S, equities benchmark trades at 15x the estimated earnings of its members, which is higher than the 14.2x median multiple over the past 5 years. The index ended 2013 with the highest valuation since 2009.
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In an interview with Bloomberg Television, David Kostin, chief U.S. equity strategist at Goldman Sachs Group Inc (NYSE:GS) commented, “The way to think about the market is the level of earnings and the multiple which should be applied to that earnings growth. Those really are the fundamental drivers of the level of U.S. equity markets this year.”
On the other hand, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta stated that the country’s economy is on a “solid footing” and he would support a continued reduction to the monthly bond purchases. He also noted that the employment situation in the country is improving even if the number of jobs added in December is less than the estimate of economists.
Economists are projecting the sales growth of the retail industry in the country weakened. Data on retail-sales growth will be released tomorrow. The projected slowdown of retail sales is expected to strengthen the case against the faster reduction to the Federal Reserve’s bond-buying program.
Bruce Bittles, chief investment strategist at RW Baird & Co said, “I think we’ve had too many blows and sentiment is extremely optimistic and that’s a negative for stocks. That means for the short term they’re fully invested. Stocks have entered the new year overbought and over-believed and until we digest that, we’re likely to stay in this range.”
Meanwhile, John Carey, fund manager at Pioneer Investment Management Inc. opined, “We’re at the very beginning of earnings season. Whatever macro news we have in the near-term will be overshadowed by earnings announcements coming out and outlooks for the rest of the year.”
- Dow Jones Industrial Average (DJIA)- 16,257.94 (-1.47%)
- S&P 500- 1,819.20 (-1.96%)
- NASDAQ- 4,113.30 (-1.47%)
- Russell 2000- 1,146.34 (-1.56%)
- EURO STOXX 50 Price EUR- 3,111.94 (+0.25%)
- FTSE 100 Index- 6,757.15 (+0.26%)
- Deutsche Borse AG German Stock Index DAX- 9,510.17 (+0.39%)
Asia Pacific Markets
- Nikkei 225- 15,912.06 (+0.20%)
- Hong Kong Hang Seng Index- 22,888.76 (+0.19%)
- Shanghai Shenzhen CSI 300 Index- 2,193.68 (-0.51%)
Stocks in Focus
The stock price of Alcatel Lucent SA (NYSE:ALU) gained more than 5% to as much as $4.48 per share earlier today, but ended the trading session at around $4.33 per share. The stock moved upwards on reports that the company engaged in negotiations to sell its enterprise business. Sources said Alcatel Lucent held talks with Unify GmbH & Co. KG, a joint venture between Gores Group LLC and Siemens AG (NYSE:SI).
BEAM Inc (NYSE:BEAM) gained more than 24% to $83.42 per share after the company agreed to be acquired by Suntory Holdings Ltd for $83.50 per share or $16 billion in cash. The proposed acquisition acquisition price is a 25% premium to the closing price of BEAM on Friday at $66.97 per share.
Last but not least, the shares of Juniper Networks, Inc. (NYSE:JNPR) surged almost 8 percent to $25.32 per share after activist hedge fund Elliot Management Corp recommended several strategies to achieve its value potential such as cost reduction measures and a shares repurchase program worth $3.5 billion. In a statement, Elliot said, “We believe these value initiatives can collectively result in a stock price of $35-$40 per share, [about ] 57%-77% above the current price.”