Bloomberg News

S&P 500 Halts Four-Month Rise on Economic Concern

April 30, 2012

The Standard & Poor’s 500 Index (SPX) declined, halting a four-month advance, after a report showed that business activity expanded at the slowest pace since November 2009 and Spain’s economy entered into a recession.

Bank of America Corp. (BAC:US), Caterpillar Inc. (CAT:US) and Monsanto Co. (MON:US) retreated at least 1.7 percent. Humana Inc. (HUM:US) tumbled 8.1 percent as profit at the provider of U.S.-backed Medicare insurance missed analysts’ projections. NYSE Euronext (NYX:US) slumped 4.9 percent amid a 44 percent decline in earnings. Barnes & Noble Inc. soared a record 52 percent after Microsoft Corp. (MSFT:US) said it plans to invest $300 million in a venture with the bookstore chain.

The S&P 500 lost 0.4 percent to 1,397.91 at 4 p.m. New York time, extending its April decline to 0.7 percent. The Dow Jones Industrial Average fell 14.68 points, or 0.1 percent, to 13,213.63 today. The gauge rose less than 0.1 percent in April, gaining for a seventh month in the longest winning streak since 2007. About 6.1 billion shares changed hands on U.S. exchanges today, or 8.9 percent below the three-month average.

“Europe is a chronic situation,” said Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc. (BLK:US) His firm oversees $3.68 trillion as the largest asset manager. “Even under a best-case scenario, where there’s no banking crisis, the reality is: it’s going to be a very slow process. While you’ve got evidence that the U.S. is recovering, the rebound will be uneven.”

Equities fell as the Institute for Supply Management- Chicago Inc. said its barometer slid to 56.2 during the month, lower than the most pessimistic forecast in a Bloomberg News survey. Consumer spending in the U.S. rose in March. Spain entered its second recession since 2009.

Earnings Season

Today’s decline came after the S&P 500 capped the biggest weekly gain in more than a month. The measure was still up 11 percent in 2012 amid better-than-estimated economic and corporate data. About 74 percent of S&P 500 companies that reported results since April 10 have beaten earnings projections, according to data compiled by Bloomberg.

“The economic doldrums in Europe are casting a shadow over any progress we’re making,” said Jack Ablin, chief investment officer of Harris Private Bank in Chicago, which oversees about $60 billion. “We may not get a negative period for the market, but it may just be a quiet one.”

Technology and industrial shares fell the most among 10 S&P 500 groups. A gauge of homebuilders in S&P indexes slid 1.6 percent after last week surging to the highest since 2008. (S15HOME) Bank of America fell 1.7 percent to $8.11. Caterpillar slipped 1.7 percent to $102.77. Monsanto dropped 2.1 percent to $76.18.

Humana Slumps

Humana lost 8.1 percent, the most since 2009, to $80.68. Net income (HUM:US) dropped 21 percent to $248 million, or $1.49 a share, from $315 million, or $1.86, a year earlier. The per-share result missed by 2 cents the $1.51 average of 9 analyst estimates compiled by Bloomberg.

NYSE Euronext slumped 4.9 percent to $25.75. European regulators blocked NYSE Euronext from merging with Deutsche Boerse AG in February, frustrating plans to mitigate a slowdown in stock trading and boost earnings and sales through cooperation on derivatives. Today’s report highlights the challenges that spurred the takeover proposal, exacerbated by a decline in equity volume across American exchanges to some of the worst levels in a decade.

VeriFone Systems Inc. (PAY:US) slipped 12 percent to $47.64. The largest maker of credit-card terminals was cut to sell from hold by Deutsche Bank AG.

Barnes & Noble

Barnes & Noble (BKS:US) soared 52 percent, the most in the Russell 2000 Index, to $20.75. The investment will give Microsoft about 18 percent of the newly formed company, which has yet to be named. The companies will develop a Nook e-reader application for Windows 8 and have also settled their patent litigation.

Merck & Co. jumped 2 percent, the biggest gain in the Dow, to $39.24. The company’s patent for the cholesterol drugs Zetia and Vytorin is valid and enforceable, a federal judge ruled April 27 in a case against Mylan Inc. (MYL:US), which sought to sell generic versions of the drugs before the patent expires.

Takeover news helped lift some companies today, limiting the market’s losses. Sunoco Inc. (SUN:US) climbed the most in the S&P 500 (SPXL1), adding 20 percent to $49.29. The Philadelphia-based refiner agreed to be acquired for $5.3 billion in shares and cash by Energy Transfer Partners LP, which is adding oil transportation and distribution assets.

Gen-Probe Inc. (GPRO:US) surged 19 percent to $81.55. Hologic Inc. (HOLX:US), a maker of diagnostic medical and surgical devices, agreed to buy the company for about $3.7 billion in cash to expand its tests for sexually transmitted diseases.

Exploring Sale

Warner Chilcott Plc (WCRX:US) rallied 16 percent to $21.81. The maker of dermatology and women’s health drugs said it is exploring a sale of the company and is in talks with potential buyers.

Monster Beverage Corp. (MNST:US) jumped as much as 28 percent after the Wall Street Journal reported Coca-Cola Co. (KO:US) is in talks to buy the maker of energy drinks, then erased the gain after Coca- Cola denied the report. Monster lost 0.8 percent to $65. Coca- Cola slid 0.4 percent to $76.32, trimming a loss of as much as 0.9 percent.

Harman International Industries Inc. gained 4.9 percent to $49.58. The maker of car audio systems reported third-quarter profit that exceeded analysts’ estimates and announced a record- high $2 billion contract.

Analysts predict U.S. shares will rise enough this year to boost the S&P 500 to a record, even as Wall Street strategists say the best is already over for American equities.

S&P 500 Projections

Individual price forecasts for stocks show the combined projection for the gauge has risen to 1,569.74, according to analyst estimates compiled by Bloomberg. That compares with the October 2007 high of 1,565.15. At the same time, strategists who base their predictions on assessments of the economy say this year’s rally represents all the gains investors will see.

Bullish forecasts are based on analysts’ expectations that S&P 500 earnings will reach records every year through 2014 as stimulus by the Federal Reserve props up the U.S. economy. Bears say Europe’s debt crisis won’t be contained and economic growth will be insufficient to maintain gains.

Analysts are signaling that 13 straight quarters of higher- than-expected earnings and record profits through 2014 will help drive the gauge back to its all-time high. Earnings will jump 14 percent to $105.12 a share in 2012, according to analysts’ estimates compiled by Bloomberg.

“The financial strength of corporate America is stronger than people believe,” Jeffrey Schwarte, a money manager who helps oversee about $258.2 billion in Des Moines, Iowa, at Principal Global Investors, said in a telephone interview on April 25. “We believe earnings ultimately matter.”

To contact the reporter on this story: {Rita Nazareth} in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net


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Companies Mentioned

  • BAC
    (Bank of America Corp)
    • $17.66 USD
    • 0.04
    • 0.2%
  • CAT
    (Caterpillar Inc)
    • $92.17 USD
    • 0.46
    • 0.5%
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