The Standard & Poor’s 500 Index (SPX) rose, amid the cheapest valuation in six months, after an unexpected increase in a measure of service industries and as a report said Europe’s bailout fund was preparing a credit line for Spain.
Financial, commodity and technology shares had the biggest gains in the S&P 500 among 10 groups. JPMorgan Chase & Co. (JPM:US) and Hewlett-Packard Co. (HPQ:US) climbed at least 2.9 percent. A gauge of homebuilders in S&P indexes rallied 4 percent as Lennar (LEN:US) Corp. and PulteGroup Inc. (PHM:US) surged more than 5.9 percent. Facebook Inc. (FB:US) retreated 3.8 percent, extending its decline since the company’s initial public offering last month to 32 percent.
The S&P 500 rose 0.6 percent to 1,285.50 at 4 p.m. New York time. The Dow Jones Industrial Average added 26.49 points, or 0.2 percent, to 12,127.95. It snapped a four-day drop. The Russell 2000 Index of small companies gained 1.2 percent to 746.09. About 6.1 billion shares changed hands on U.S. exchanges today, or 9.3 percent below the three-month average.
“I’d be a buyer of stocks,” John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York, said in a telephone interview. His firm oversees $205 billion. “The U.S. economy is doing OK. Obviously, there are lots of things that could go wrong. We’re going to have to see more agreements in Europe. Yet valuation is attractive, the market is cheap.”
The S&P 500 started the day trading at 12.9 times its companies’ reported earnings, the lowest valuation since November, according to data compiled by Bloomberg. Yesterday, the index briefly extended a drop from its April peak to more than 10 percent amid disappointing economic data.
Equities reversed early losses today as the Institute for Supply Management’s index of non-manufacturing businesses, which covers about 90 percent of the economy, unexpectedly rose to 53.7 last month from April’s 53.5. The median forecast of 75 economists surveyed by Bloomberg News projected 53.4. Finance ministers and central bank governors from the world’s leading economies agreed to coordinate their response to Europe’s crisis on a conference call that dealt with Spain and Greece.
Spain called for outside support for the first time to battle the financial (S5FINL) crisis as Budget Minister Cristobal Montoro said European institutions should help shore up the nation’s lenders. The country may receive a precautionary credit line from the European Financial Stability Facility, Germany’s Die Welt newspaper reported in a preview of a story that will run tomorrow, citing unidentified people familiar with talks about the possible option.
“We’re going to continue to see a bipolar financial market until the European situation gets sorted out,” said Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus & Co., which oversees $127 billion of assets. “The U.S. economy is growing at a glacial pace. This growth rate could sustain market valuations.”
Eight out of 10 groups in the S&P 500 gained. The KBW Bank Index (BKX) added 1.5 percent. JPMorgan climbed 3.2 percent to $31.99. Hewlett-Packard, the world’s largest personal-computer maker, rose 2.9 percent to $21.68. Homebuilder Lennar jumped 6.7 percent to $25.27, after slumping 13 percent in two days. PulteGroup increased 6 percent to $8.16.
Prudential Financial Inc. (PRU:US) led a rally of life insurers (RRU:US) as investors bet the company’s agreement to handle pension obligations for General Motors Co. may signal more opportunities for the industry. Prudential, the second-largest U.S. life insurer, advanced 2.8 percent to $45.99. No. 1 MetLife Inc. (MET:US) climbed 2.1 percent to $28.39.
SanDisk Corp. (SNDK:US) surged 5.5 percent to $33.41. The company, which makes memory chips used in mobile devices, was rated outperform in new coverage at Pacific Crest Securities.
Facebook slid 3.8 percent to $25.87, the lowest since it went public last month at $38. A Reuters/Ipsos poll showed sagging interest in the site and a minority of users being influenced by ads and comments when making purchasing decisions.
Starbucks Corp. (SBUX:US) dropped 2.8 percent to $52.41. The world’s largest coffee-shop operator agreed to buy Bay Bread LLC for $100 million in cash, making its largest acquisition to further expand its offering of food with pastries and sandwiches.
Dollar General Corp. (DG:US) declined 3.6 percent to $46.76. The discount-retail chain said Buck Holdings LP, along with Chief Executive Officer Richard Dreiling and other executives, plans to sell a total of 25 million shares (DG:US).
W.W. Grainger Inc. dropped 5.1 percent to $177.95. The supplier of industrial goods from tools to paper fell after an MKM Partners analyst said the growth phase of the manufacturing cycle is over.
The S&P 500 may extend its decline from its April peak to 15 percent in a “selling climax” that would deplete bears, according to StockCharts.com Inc. The index dropped 9.9 percent to 1,278.18 through yesterday from its 2012 high on April 2 as concern grew that global economic growth is slowing and Europe’s debt crisis is worsening.
While the gauge will likely be supported at 1,250, further selling may push it as low as 1,200, a level where the S&P 500 would retrace 61.8 percent its advance since October, said Arthur Hill, a technical analyst at Redmond, Washington-based StockCharts.com.
“Economic reports have been largely below expectations the last two months and the stock market is pricing in this information,” Hill wrote in a note yesterday. While the S&P 500 will probably find support at 1,250, “we could even see an overshoot because some sort of selling climax is possible before all selling is exhausted,” he said.
The S&P 500 slumped 6.3 percent in May, the most since September, amid concern Greece would exit the euro area and as data on U.S. jobs and manufacturing missed forecasts. The index on June 1 dropped below its 200-day average for the first time since December after a Labor Department report showed the economy added the fewest jobs in a year.
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