Bloomberg News

U.S. Stocks Erase Loss Amid Buying Ahead of Index Changes

November 30, 2012

U.S. stocks erased losses in the final 15 minutes, sending the Standard & Poor’s 500 Index to a second weekly gain, as investors bought shares before changes to MSCI Inc. indexes amid federal budget talks.

MetroPCS Communications Inc. rallied 5 percent as Guggenheim Securities LLC said the wireless carrier could get a bid from Sprint Nextel Corp. VeriSign Inc. plunged 13 percent, the most in the S&P 500, after a new contract letting the company manage Web sites ending in .com limited price increases. Yum! Brands Inc. (YUM:US) lost 9.9 percent after saying same-store sales in China will decline. Zynga Inc. dropped 6.1 percent after loosening terms of its longstanding alliance with Facebook (FB:US) Inc.

The S&P 500 rose less than 0.1 percent to 1,416.18 at 4 p.m. in New York. The Dow Jones Industrial Average added 3.76 points, or less than 0.1 percent, to 13,025.58. More than 7.1 billion shares traded hands on U.S. exchanges today, or 15 percent above the three-month average, according to data compiled by Bloomberg.

“A lot of the volatility near today’s close is due to the MSCI rebalance,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said by e-mail. His firm oversees $250 billion. “Outside of that, we’ve been trading solely on political rhetoric in Washington.”

Changes to MSCI’s global indexes were implemented at the close of trading today, causing the S&P 500 (SPX) to jump as much as 0.2 percent to its highest intraday level of 1,418.86 within the final two minutes of trading before paring most of its gain by the close. The eight U.S. companies that were added included homebuilder Lennar Corp. and Under Armour Inc., a sportswear maker. For-profit educator Apollo Group Inc. and coal miner Walter Energy Inc. were among the seven stocks removed.

MSCI Changes

MSCI, the developer of gauges such as the MSCI World Index (MXWO) of 24 developed countries, made the changes after a semi-annual review. Amendments to indexes can alter share prices as passively managed funds buy and sell stocks to mirror the benchmark indexes. About $3 trillion of funds are benchmarked against its indexes globally, according to MSCI. Some $321.9 billion was invested in exchange-traded funds linked to MSCI indexes at the end of October.

“Rebalances can sometimes create price dislocation,” Mike Shea, a managing partner at New York-based brokerage firm Direct Access Partners LLC, wrote in an e-mail. “Let’s also not forget the competitive nature of Wall Street. Not every investor simply places their order into the end of day closing match. Some try and outperform that closing price. So it is not uncommon to see more aggressive trading around the close.”

‘Prolonged Negotiations’

President Barack Obama earlier today warned of “prolonged negotiations” ahead as congressional Republicans dug in on their opposition to his plan to avert the fiscal cliff. House Speaker John Boehner, an Ohio Republican, told reporters in Washington “right now we’re almost nowhere” on talks.

The S&P 500 advanced 0.5 percent this week and rose 0.3 percent for the month. U.S. stocks have swung between gains and losses amid lawmakers’ comments on whether an agreement can be reached to avert more than $600 billion in spending cuts and tax increases scheduled to begin on Jan. 1. The benchmark gauge of U.S. stocks has lost 0.9 percent since the president won re- election on Nov. 6.

Savita Subramanian, head of U.S. equity strategy at Bank of America Corp. wrote in a note that she expects the market to be in a “better place” by mid-2013, as the equity risk premium gradually declines. She cited a bottoming in China growth, reduced tail risk from Europe and a multi-stage solution to the fiscal cliff. New York-based Subramanian forecasts the S&P 500 will reach 1,600 at the end of next year on earnings of $110 a share.

Fund Inflows

U.S. equity funds tracked by EPFR Global attracted more than $10 billion in net inflows during the fourth week of November, their best showing in more than a year, according to the Cambridge, Massachusetts-based research firm.

Spending by U.S. consumers unexpectedly declined and incomes stagnated in October as superstorm Sandy kept those in the Northeast from getting to work or from shopping at malls and car dealerships.

Purchases decreased 0.2 percent, the weakest reading since May, after a 0.8 percent gain in the prior month, Commerce Department figures showed today in Washington. The median estimate of 79 economists surveyed by Bloomberg called for no change in so-called nominal sales. Incomes were unchanged, held down by a drop in wages caused by Sandy.

Sandy’s Impact

“I’m concerned that the fundamentals are starting to roll over,” Douglas Cote, chief market strategist at New York-based ING U.S. Investment Management, said in a telephone interview. His firm oversees about $165 billion. “I did not like the consumer numbers out today. Personal income and personal spending were below consensus. People say it’s because of Sandy but the consensus knew about Sandy and it’s below the Sandy- factored-in consensus. That’s a concern.”

Utility companies advanced 1 percent for the biggest gain among 10 industries in the S&P 500. The sector has increased for five straight days, the longest winning streak since July 2. It is still the only S&P 500 group to be down this year, having fallen 2.7 percent.

MetroPCS rallied 5 percent to $10.65. Guggenheim analyst Shing Yin said the pay-as-you-go wireless carrier could get a bid in the next one to four weeks from Sprint for as much as $13 a share. MetroPCS agreed last month to merge with Deutsche Telekom AG’s T-Mobile USA division. Under the deal, the German parent company will hold 74 percent of the combined entity and pay MetroPCS shareholders $1.5 billion in cash.

Share Buyback

St. Jude (STJ:US) Medical Inc. added 1.8 percent to $34.28. The second-largest manufacturer of heart rhythm devices authorized a share buyback program for as much as $1 billion amid a U.S. regulatory review for the manufacturing of one of its key products. The St. Paul, Minnesota-based company was raised to buy from neutral at Mizuho Securities USA.

Advanced Micro Devices Inc. (AMD:US) rallied for a fourth straight day, rising 7.8 percent to $2.20. The second-largest maker (AMD:US) of personal-computer processors has surged 18 percent since Nov. 27 amid a report it will sell its Austin, Texas campus to raise cash. Shares of the Sunnyvale, California-based company are still down 59 percent this year.

VeriSign tumbled 13 percent to $34.15. The U.S. Department of Commerce approved a contract extension through Nov. 30, 2018, that lets the main manager of the Internet-address database continue current pricing of $7.85 per domain name registration. VeriSign no longer has the right to four price increases of as much as 7 percent over the term of the contract, an option that was included in the previous accord.

Yum Sales

Yum fell 9.9 percent to $67.08. The company, owner of the Taco Bell and KFC dining chains, said fourth-quarter same-store sales in China will decline 4 percent from a year earlier.

Other consumer-discretionary shares slumped. Coach Inc., the largest U.S. luxury handbag maker, dropped 2.6 percent to $57.84. Tiffany & Co. slumped 1.4 percent to $58.98, while homebuilder PulteGroup Inc. sank 1.9 percent to $16.81.

Zynga Inc. (ZNGA:US) erased 6.1 percent to $2.46, while Facebook rose 2.5 percent to $28 after earlier falling as much as 2.1 percent. The companies loosened terms of their longstanding alliance, making it easier for competing game developers to vie for users on the world’s largest social-networking service. The new terms eased log-in, payment and advertising requirements for Zynga, which makes most of its money by selling virtual goods (ZNGA:US) in games played on Facebook.

Groupon Inc. (GRPN:US) lost 8.7 percent to $4.15. The largest provider of online coupon has no immediate plans to replace Chief Executive Officer Andrew Mason after its board met to deliberate whether to make changes to senior management. Directors of the Chicago-based company met yesterday and some members were planning to voice frustration with Mason’s leadership, a person with knowledge of the matter said.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

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


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Companies Mentioned

  • YUM
    (Yum! Brands Inc)
    • $82.35 USD
    • -0.12
    • -0.15%
  • FB
    (Facebook Inc)
    • $66.34 USD
    • 1.47
    • 2.21%
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