U.S. Stocks Fluctuate After Home Data Amid Budget Concern
<cite class="byline" style="margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 11px; vertical-align: baseline; background-color: transparent; width: 640px; color: rgb(111, 111, 111); display: block; font-style: normal; line-height: 1.3em; position: static !important; background-position: initial initial; background-repeat: initial initial;">By Lu Wang - Sep 26, 2013 12:39 AM GMT+0800</cite>
U.S. stocks fluctuated, after the Standard & Poor’s 500 Index fell four straight days, as investors weighed housing data amid growing concern lawmakers won’t reach a budget deal to avoid a government shutdown.
D.R. Horton Inc. climbed 1.5 percent to pace gains in an S&P gauge of homebuilder stocks. Noble Corp. added 2.7 percent after the offshore rig contractor said it plans to spin off about half its fleet. J.C. Penney Co. slumped 14 percent after Goldman Sachs Group Inc. said the retailer’s liquidity will be strained this quarter. Stryker Corp. slipped 2.2 percent after agreeing to buy Mako Surgical Corp. for $1.65 billion.
The S&P 500 rose less than 0.1 percent to 1,697.95 at 12:38 p.m. in New York, reversing an earlier drop of as much as 0.3 percent. The Dow Jones Industrial Average fell 17.02 points, or 0.1 percent, to 15,317.57. Trading in S&P 500 stocks was 6.6 percent above the 30-day average at this time of day.
“There is a lot of noise that’s disruptive to people doing anything with a great deal of confidence,” Don Hodges, founder of Dallas-based Hodges Funds, said in a phone interview, referring to budget negotiations. His firm manages about $1.3 billion. “Anytime the market is as strong as it’s been in the last few weeks, you just know that it’s capable of having a pullback that shakes off a people a little bit.”
The S&P 500 fell 0.3 percent yesterday, pushing its four-day slide to 1.6 percent, as investors watched the debate inWashington over spending cuts that could lead to a government shutdown after funding authority ends on Sept. 30.
Budget Vote
The Senate is poised to vote today on advancing a stopgap measure that would give House Speaker John Boehner, anOhio Republican, time to craft an alternative budget bill. The dispute probably will continue through the weekend.
On another fiscal front, the House today could introduce legislation to increase the government’s authority to borrow and pay bills. The Treasury Department estimates that the debt limit could be reached as soon as mid-October.
“The way the market is behaving would indicate that market participants believe things are going to be hammered out at the last minute,” Paul Mendelsohn, chief investment strategist at Windham Financial Services Inc., a brokerage firm in Charlotte, Vermont, said in a phone interview.
U.S. Treasury Secretary Jacob J. Lew said investor confidence that a deal can be struck to raise the limit is “a bit greater than it should be.” Lew, who spoke at the Bloomberg Markets 50 Summit in New York yesterday, repeated that President Barack Obama won’t negotiate with congressional Republicans on increasing the $16.7 trillion ceiling on the nation’s borrowing authority and said the government probably will have less than $50 billion in cash by mid-October.
Housing Sales
Data from the Commerce Department today indicated purchases of new U.S. homes rose 7.9 percent to a 421,000 annualized pace in August, capping the weakest two months this year, showing the fallout from mortgage rates at a two-year high is cooling the real-estate rebound. Demand slumped 14.1 percent in July.
A separate government report showed orders for equipment such as computers and machinery climbed less than forecast in August, indicating a strengthening in business spending will take time to develop. Bookings for non-military capital goods excluding aircraft increased 1.5 percent, less than the 2 percent gain that was the median forecast in a Bloomberg survey.
Fed Decision
Investors have been scrutinizing data to determine whether economic growth is robust enough for the Federal Reserve to begin paring back its $85 billion in monthly bond purchases. The central bank’s decision Sept. 18 to refrain from tapering sent the S&P 500 to a record close of 1,725.52. The index is up 19 percent in 2013.
The gauge had retreated every session through yesterday since the Fed decision, as policy makers sent mixed signals on the timing of the central bank’s next move. Fed Bank of St. Louis President James Bullard said Sept. 20 that tapering could start in October. William Dudley, head of the New York Fed, said yesterday any cut would depend on the economy’s performance.
“The market had a euphoric reaction to the no-taper talk last week,” Diane Jaffee, the New York-based group managing director for U.S. equities who oversees about $6.4 billion in assets at TCW Group Inc., said in a phone interview. “There has been some push and pull on whether this is just a temporary waiting for the taper to actually start, or whether lower for longer is the new reality.”
Losing Faith
Americans are losing faith in the nation’s economic recovery, according to a Sept. 20-23 Bloomberg National Poll. Forty-four percent of poll respondents say they expect the economy, which has expanded for nine consecutive quarters, to remain about the same over the next year, while 28 percent see it weakening. A report yesterday from the Conference Board showed an index of U.S. consumer confidence slumped in September to a four-month low.
The S&P 500 has rallied 5.9 percent in the third quarter while Treasuries retreated 0.1 percent through yesterday, according to data compiled by Bloomberg and Bank of America Corp. The divergence will cause some funds to sell stocks and buy bonds to rebalance asset allocations. UBS AG strategist Boris Rjavinski projects “significant” outflows from U.S. equities into Treasuries, with as much as $41 billion in stocks being sold and up to $22 billion of fixed-income investments purchased.
The Chicago Board Options Exchange Volatility Index (VIX), the gauge of S&P 500 options prices known as the VIX, lost 0.1 percent to 14.06. The measure has fallen 23 percent this year. Five of 10 S&P 500 main industries rose as raw-materials producers and financial firms gained at least 0.5 percent.
Housing Stocks
JPMorgan Chase & Co. rallied 2.1 percent to $51.36 to pace gains among large companies. Newmont Mining Corp. added 1.8 percent to $28.51 as commodities halted a four-day slump.
An S&P gauge of homebuilders gained 1.2 percent, as 10 of 11 members advanced. D.R. Horton Inc. rose 1.5 percent to $20.35 and PulteGroup Inc. increased 1.4 percent to $17.33.
Toll Brothers Inc. gained the least, rising 0.2 percent to $33.39 after Chief Executive Officer Douglas Yearley said late yesterday that business is flat seven weeks into the homebuilder’s fourth quarter.
Noble (NE) climbed 2.7 percent to $38.95. The contractor said the planned spin off will let it focus on higher-priced rigs working in deeper waters. An initial public offering of as much as 20 percent of the new company’s shares may precede a tax-free distribution of the new stock to existing Noble investors, the company said.
Facebook Inc. rose 1.1 percent to $49, the stock’s sixth gain in the past seven sessions, with each advance setting a fresh record. Canaccord Financial Inc. initiated its coverage of the social media company with a buy rating. Facebook is “very early in generating revenue from its enormous user base,” Michael Graham wrote in a note, giving the stock a price target of $60.
Robot Surgery
Stryker fell 2.2 percent to $69.27. The second-largest seller of orthopedic devices agreed to buy Mako for $30 a share to add technology for robot-assisted surgeries. Mako surged 82 percent to $29.49.
Intuitive Surgical Inc., another maker of robotic surgical equipment, climbed 1.6 percent to $369.55.
Carnival Corp. (CCL) lost 4.4 percent to $33.02, extending a 7.7 percent drop yesterday after the world’s largest cruise-ship operator forecast an unexpected loss for the fourth quarter. Morgan Stanley cut its recommendation to underweight, similar to a sell rating, from equal weight, while Bank of America Corp. lowered its rating to neutral from buy.
J.C. Penney slumped 14 percent to $10.25, the lowest since December 2000, extending the stock’s slide in 2013 to 48 percent.
“Weak fundamentals, inventory rebuilding, and an underperforming home department will likely challenge J.C. Penney’s liquidity levels in the third quarter,” Kristen McDuffy, at New York-based analyst for Goldman, wrote yesterday in a note to clients.
Riskless Return
U.S. stocks are delivering the best risk-adjusted returns among the world’s biggest developed markets as a third straight year of earnings growth produces steadier gains. The S&P 500 has risen 1.9 percent in 2013 when adjusted for price swings, the top advance among 24 of the largest developed nations, according to the data compiled by Bloomberg. The performance exceeds Japan, where prices have surged almost twice as much this year, as a measure of U.S. volatility reached a six-year low.
U.S. equities have provided more stable returns as China’s economy expands at the slowest pace in at least two decades and Europe faces record joblessness, prompting investors to seek safety in American companies. The Fed’s unprecedented bond purchases and five years of S&P 500 profit growth have helped rebuild investor confidence after the financial crisis and reduce price swings.
“The U.S. continues to be the most resilient economy across the world and its markets have reflected that with the least amount of volatility,” Joseph Tanious, global market strategist for J.P. Morgan Asset Management, said in a phone interview from New York. His firm oversees about $1.5 trillion. “Earnings growth has continued to hit record highs. There is less skepticism about the long-term potential in U.S. markets.”
To contact the reporter on this story: Lu Wang in New York at [email protected]
To contact the editor responsible for this story: Lynn Thomasson [email protected]
