Most U.S.
stocks
fell, after benchmark indexes climbed to record levels last week, even
as government data showed retail sales unexpectedly rose in April.
Yum!
Brands Inc. fell 2.1 percent after the owner of the KFC and Pizza Hut
dining chains reported a slump in April sales in China.
Corning Inc. (GLW)
climbed 0.9 percent as analysts raised their recommendation for the
shares. Theravance Inc. rose 18 percent after Elan Corp. agreed to pay
$1 billion for a share in royalties on new drugs.
The Standard & Poor’s 500
Index (SPX) rose less than 1 point to 1,633.77 at 4 p.m. in
New York. The
Dow Jones Industrial Average
slid 26.81 points, or 0.2 percent, to 15,091.68. Almost 5.3 billion
shares traded hands on U.S. exchanges today, or 16 percent below the
three-month average, as about seven stocks declined for every five that
advanced.
“It’s obvious that this market has got legs, the
question is whether the economy is going to grow some legs to support
stocks going forward,” Frank Braddock, senior portfolio manager with the
Braddock Group of JHS Capital Advisors, said by phone from Columbia,
South Carolina. JHS oversees about $3.4 billion.
The
0.1 percent increase in U.S. retail sales followed a 0.5 percent
decline in March, Commerce Department figures showed today in
Washington. The median forecast of economists surveyed by Bloomberg called for a 0.3 percent
drop.
A separate report showed companies in the U.S. unexpectedly held
inventories in check in March as sales fell by the most in nine months,
an indication orders will rise as demand picks up.
Overseas,
Israel’s
central bank cut its benchmark rate 25 basis points to 1.5 percent,
joining a wave of monetary easing spanning from the U.S. to
Europe. In
China, the world’s second-largest economy, fixed-asset investment unexpectedly decelerated last month while
industrial output trailed estimates.
Tax Increases
“It
seems consumers have been able to absorb the tax increases better than
most had thought, but we still need to see if we can come out of this
second-quarter purgatory,” Ron Florance, the Scottsdale, Arizona-based
managing director of investment strategy at Wells Fargo Private Bank,
which has $170 billion assets under management, said in a phone
interview. “Israel surprised with their rate drop and everyone around
the world is now doing easy money, so the pedal is to the metal at the
global level.”
The
S&P 500 rallied to a
record
on May 10, capping a third week of gains and extending its advance so
far this year to 15 percent. U.S. stocks climbed last week as companies
from Walt Disney Co. to DirecTV beat earnings estimates and central
banks worldwide stepped up monetary stimulus to boost growth.
Volatility Index
The
Chicago Board Options Exchange Volatility Index, or VIX, fell 0.3
percent to 12.55. The equity volatility gauge is down 30 percent for the
year.
Seven out of
10 (SPXL1)industries
in the S&P 500 retreated as phone stocks and raw-material producers
declined the most, while health-care companies had the largest gains as
a group. Peabody Energy Corp. slumped 4.1 percent to $20.14 for the
biggest retreat in the S&P 500, followed by losses of more than 3.4
percent in Joy Global Inc. and U.S. Steel Corp.
Yum slid 2.1
percent to $68.92 after the company reported a 29 percent drop in sales
at stores open at least 12 months in China as the spread of bird flu
hurt demand. Analysts projected a 27 percent drop, the average of five
estimates compiled by researcher Consensus Metrix. Sales dropped 36
percent at KFC while gaining 5 percent at
Pizza Hut.
AutoZone
Inc. slipped 1.2 percent to $415.76. The retailer of automotive
replacement parts and accessories was downgraded to hold from buy at
Deutsche Bank AG with a 12-month price estimate of $410 a share.
Mosaic Buybacks
Mosaic
Co. lost 3.1 percent to $61.30. The world’s largest producer of
phosphate crop nutrients said it favors share buybacks over dividends to
redeploy surplus cash. With an estimated $2 billion of cash by the end
of the month, Mosaic is assessing its ability to buy back shares while
seizing growth opportunities and maintaining a “solid” investment-grade
credit rating, Chief Financial Officer Larry Stranghoener said today on a conference call.
Corning (GLW)
rose 0.9 percent to $15.24 after Barclays Plc raised its recommendation
for the shares to overweight, the equivalent of a buy rating. Morgan
Stanley also upgraded the maker of glass for flat-panel televisions to
equal weight, a level similar to hold, from underweight.
Theravance Rallies
Theravance
jumped 18 percent to $41.20 after Elan agreed to buy a share of drug
royalties that Theravance will receive from GlaxoSmithKline Plc. The
Irish drugmaker will receive 21 percent of royalties earned by
Theravance on four respiratory drugs, and 20 percent of that income will
be paid to Elan shareholders as a dividend.
J.C. Penney Co. rose
2.9 percent to $18.24. The department-store chain that replaced its
chief executive officer last month set a lender meeting for tomorrow to
discuss a $1.75 billion loan, according to a person with knowledge of
the matter who asked not to be identified because the deal is private.
CEO Myron Ullman is working to improve sales after revenue last year
tumbled 25 percent to $13 billion amid
Ron Johnson’s failed attempt to remake the retailer.
The
S&P 500 has climbed to record highs on seven of the last eight
trading days. Oppenheimer & Co.’s John Stoltzfus raised his year-end
target for the index to 1,730 today from 1,585, ranking him as the
second-most bullish strategist on
Wall Street after Canaccord Genuity Securities LLC’s Tony Dwyer, who has a 1,760 estimate on the benchmark index.
Bull Market
Returns from the U.S. equity
bull market that started four years ago are matching those from the last half of the 1990s even as valuations are 28 percent lower.
The S&P 500 has gained 26.2 percent annually including dividends since March 2009,
the same as
during the last 50 months of the technology bubble, according to data
compiled by Bloomberg. Shares in the index now trade at 18.6 times
annual profit, below the average 25.7 multiple in the 1990s rally led by
Internet companies.
For bulls, the
valuations
show stocks will keep rising after the S&P 500 advanced 164 percent
as individuals scarred by the worst financial meltdown since the Great
Depression return to equities. Bears say the price-earnings ratios mean
investors lack confidence in the economy and corporate profit growth.
They also note that the last time returns were this high, the bubble
popped and more than $5 trillion was erased from the value of U.S.
stocks, according to data from the
World Bank.
“The size of this rally’s not what keeps me up at night,” Paul Zemsky, the New York-based head of
asset allocation for ING Investment Management, which oversees about $170 billion, said in a May 8 phone interview. “That was a tremendous
rally
then, too, but I’m not getting all nervous based on the size of the
rally this time, because we’re not there yet in terms of valuation.”
Corbis