U.S. Stock-Index Futures Gain Before Fed as Twitter Jumps

New York (July 30)  U.S. stock futures rose, indicating equities will rebound from yesterday’s selloff, before the Federal Reserve’s decision on monetary policy and as results from Twitter Inc. (TWTR) to Amgen Inc. (AMGN) beat estimates.

Twitter soared 25 percent after also boosting its annual sales forecast. Amgen rallied 4.2 percent after saying it will cut jobs and close plants. Hess Corp. gained 5.1 percent after posting profit that beat projections and saying it will form a master limited partnership for one of its units.

Futures on the Standard & Poor’s 500 Index (SPX) expiring in September added 0.3 percent to 1,968.50 at 8:18 a.m. in New York. The equity gauge fell yesterday, closing 0.9 percent away from its record, as President Barack Obama announced new sanctions against Russia. Dow Jones Industrial Average contracts gained 40 points, or 0.2 percent, to 16,885 today, after the stocks gauge dropped to a three-week low.

“Twitter is quite certainly pushing the futures, but there’s a lot of underlying tension,” said Mike Franklin, chief investment strategist at Beaufort Securities Ltd. in London. “It’s as if the market is taking a lot of sugar at the moment and is very hyped up: If something’s a little bit better than expected the market goes way up, and just a little bit out of line there’s a huge selloff.”

Companies in the U.S. added 218,000 workers to their payrolls in July, figures from the ADP Research Institute in Roseland, New Jersey showed today. The median forecast in a Bloomberg survey of economists called for a 230,000 advance. That followed a 281,000 increase in June that was the most since November 2012.

The ADP data comes before a report from the U.S. government Friday that may show the addition of 231,000 non-farm employees in July, according to the median estimate.

Fed Decision

A report at 8:30 a.m. in Washington may show the world’s largest economy expanded at a 3 percent annualized rate in the second quarter, economists predicted.

The S&P 500 has advanced 6.6 percent this year, as the U.S. economy shows signs of recovering from a 2.9 percent contraction in the first quarter. Fed Chair Janet Yellen said earlier this month that the central bank must press on with stimulus with record easing to combat persistent weakness in the job market.

The Fed will reduce its monthly purchases for the sixth time to $25 billion from $35 billion after a two-day policy meeting ending today, according to economists surveyed by Bloomberg News.

Kraft Foods Group Inc., MetLife Inc. and Whole Foods Market Inc. are among 36 S&P 500 companies reporting earnings today. About 78 percent of those that have posted results this season have beaten analysts’ estimates for profit, while 67 percent exceeded sales projections, data compiled by Bloomberg show.

Earnings Estimates

Profits probably rose 8.2 percent in the second quarter, while sales gained 3.5 percent, according to analyst estimates compiled by Bloomberg.

Twitter surged 25 percent. The microblogging company raised its its full-year sales forecast to as much as $1.33 billion and said revenue for the current quarter will be $330 million to $340 million, exceeding analysts’ average estimate. Twitter reported that second-quarter sales more than doubled to $312.2 million, topping projections, and user growth jumped 24 percent to 271 million members.

Amgen added to 4.2 percent. The world’s biggest biotechnology company by sales posted earnings excluding one-time items of $2.37 a share, topping by 30 cents the average analyst estimate. The company raised its profit estimate for the year to as much as $8.40 a share excluding one-time items. It also said it will cut more than 2,400 jobs through 2015 and close plants in two states.

Stretched Valuations

The rallies in Twitter and Amgen shares show the market isn’t taking the Fed’s rumination on stock prices too seriously. The central bank said two weeks ago that social media and biotechnology valuations are stretched.

“The Fed really doesn’t do a lot of commenting on groups of stocks, so the fact that they singled out a couple sectors as looking frothy was unusual,” Jonathan Golub, chief U.S. market strategist at RBC Capital Markets, said in a phone interview from New York. “If these companies have the ability to deliver the growth, they’re worth a large premium.”

Source: Bloomberg