Bloomberg News

S&P 500 Erases Drop as M&A Deals Temper Manufacturing

July 02, 2012

U.S. Stocks Decline After Manufacturing Unexpectedly Contracts

A trader works on the floor of the New York Stock Exchange in New York. Photographer: Scott Eells/Bloomberg

Most U.S. stocks rose, sending the Standard & Poor’s 500 Index to an almost two-month high, as takeovers helped the market recover from earlier losses triggered by data showing a contraction in manufacturing.

Financial (S5FINL) and technology shares in the S&P 500 advanced, while industrial and commodity companies declined. Micron Technology Inc. (MU:US) rose 3.8 percent after agreeing to acquire (MU:US) Elpida Memory Inc., an Apple Inc. supplier. Amylin Pharmaceuticals Inc. (AMLN:US) added 8.9 percent as Bristol-Myers Squibb Co. (BMY:US) agreed to pay $5.3 billion for the drugmaker. Best Buy Co. (BBY:US) soared 5.9 percent after a report that founder Richard Schulze is close to making a bid for the electronics retailer.

The S&P 500 rose 0.3 percent to 1,365.51 at 4 p.m. New York time, after dropping as much as 0.5 percent earlier. The index gained 4 percent last month, its best June since 1999. (SPX) The Dow Jones Industrial Average retreated 8.7 points, or 0.1 percent, to 12,871.39. Volume for exchange-listed stocks in the U.S. was 6.2 billion shares, 9 percent below the three-month average.

“It’s way too early to talk about a recession,” said Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees more than $2 billion. He spoke in a phone interview. “Today’s data suggest at least some spillback from external economies into U.S. manufacturing. I wouldn’t go any further than that.”

About two stocks rose for each that fell on U.S. exchanges today. Earlier losses came as the Institute for Supply Management’s manufacturing index declined to 49.7 in June, worse than the most-pessimistic forecast in a Bloomberg News survey. Figures less than 50 signal contraction. Separate data showed euro-area manufacturing output contracted for an 11th straight month, while Chinese manufacturing indexes slipped to seven- month lows.

Fed Action

The weakness in manufacturing indicates that the slower economic growth may promote more accommodative policies from the Federal Reserve, Princeton University economist Alan Blinder said today in an interview on Bloomberg Television’s “Market Makers” with Erik Schatzker and Scarlet Fu.

“Data like this that keep coming in are encouraging or strengthening the positions of the doves on the Fed,” said Blinder, a former Fed vice chairman. “You know there’s a big civil war going on in the Federal Reserve, and weakening the position of the hawks.”

Concern about a global slowdown put the S&P 500 last month on the brink of a so-called correction, or a 10 percent decline from a recent peak. The index slumped 3.3 percent in the second- quarter, the biggest retreat since period ending in September.

Cyclicals Gain

The Morgan Stanley Cyclical Index of companies most-tied to the economy dropped 0.5 percent, trimming a decline of as much as 1.5 percent. JPMorgan Chase & Co. (JPM:US) rallied 1.5 percent to $36.28. Caterpillar Inc. (CAT:US), the world’s largest maker of construction equipment, retreated 1.5 percent to $83.68.

Micron Technology jumped 3.8 percent to $6.55. The company agreed to buy (MU:US) bankrupt Japanese chipmaker Elpida in a transaction valued at 200 billion yen ($2.5 billion), gaining memory chip-making assets that may help it avert price swings that fueled four straight quarters of losses.

Amylin Pharmaceuticals climbed 8.9 percent to $30.71. The agreement is the second announced this year for Bristol, and the largest for the industry. It comes after the blood-thinner Plavix, Bristol’s top seller in 2011 at $7.1 billion, faced generic competition for the first time in May.

M&A

Best Buy added 5.9 percent to $22.20. Schulze is close to presenting Best Buy’s board with a takeover offer, the Minneapolis Star-Tribune reported June 30, citing an unidentified person close to the situation. The plans aren’t set, the newspaper reported, citing the person. Bruce Hight, a spokesman for Best Buy, declined to comment to Bloomberg News. David Reno, a spokesman for Schulze, declined to comment.

Lincare Holdings Inc. (LNCR:US) soared 22 percent to $41.34. Linde AG agreed to acquire Lincare for about $3.8 billion to add U.S. oxygen and respiratory therapy services delivered to the home, in the German company’s biggest acquisition since 2006.

For-profit college companies such as Corinthian Colleges Inc. (COCO:US) and Education Management Corp. rose after a U.S. judge struck down regulations the day before they were to take effect that could have cut off their federal money. Corinthian jumped 11 percent to $3.21. Pittsburgh-based Education Management gained 3.3 percent to $7.18. A Bloomberg index of 13 for-profit colleges rose 1.2 percent.

MEMC Rallies

MEMC Electronic Materials Inc. rallied 22 percent to $2.64. The second-largest U.S. polysilicon maker gained after announcing the sale of four solar farms in Europe with a total capacity of 98 megawatts.

Theravance Inc. (THRX:US) rose 11 percent to $24.71 after a respiratory drug (THRX:US) being developed with GlaxoSmithKline Plc did well enough in studies that regulatory approval may be sought ahead of schedule.

OpenTable Inc. (OPEN:US) slumped 9.3 percent to $40.81. The largest U.S. online restaurant-reservation service fell after Barclays Plc issued a report that said the company may post its first- ever sequential decline in revenue (OPEN:US).

THQ Inc. (THQI:US) declined 6.5 percent to 58 cents. The video-game maker said it plans a 1-for-10 reverse stock split to maintain its Nasdaq Stock Market listing.

Volatility in the S&P 500 is returning to levels that drove valuations and stock volume down to rates not seen since at least 2003. Average daily price changes in the benchmark gauge for American equities doubled to 1 percent in June, according to data compiled by Bloomberg. At the same time, U.S. trading has plunged to an average 6.8 billion shares a day and valuations are 16 percent below the five-decade mean. Reaching those levels in tandem is unprecedented in at least nine years, the data show.

$300 Billion

Investors whipsawed by volatility that reached twice the 50-year average in 2011 have pulled about $300 billion from mutual funds since the bull market began three years ago.

With the third quarter marking the worst S&P 500 returns in election years since World War II, bears say widening price swings will keep individuals from returning to the market. Bulls say their exodus helped pull stocks lower just before growth in earnings and the economy helped spur the biggest June rally since 1999.

“We still believe in the bull market,” Laszlo Birinyi, president of Birinyi Associates Inc., said in a June 29 phone interview from Westport, Connecticut. “I’m just telling people to turn the page to the investments, the things that you can really quantify and put your fingers on. Stick to what truly matters: the company fundamentals.”

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • MU
    (Micron Technology Inc)
    • $31.06 USD
    • 0.17
    • 0.55%
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