U.S. Stocks Retreat After Personal-Income Data Trail Forecasts
Aug. 30 (Bloomberg) -- Bloomberg's Elizabeth Faublas reports on the performance of the U.S. equity market today. Stocks fell, erasing the previous session’s advance, after a smaller-than-forecast gain in personal incomes added to concern the economic rebound may slow further. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)
Aug. 30 (Bloomberg) -- Jeffrey Palma, global equity strategist at UBS AG, talks about the outlook for emerging-market stocks. Palma also talks about U.S. stocks, corporate mergers and acquisitions, and his investment strategy. He talks with Carol Massar, Matt Miller, Julie Hyman, and Dominic Chu on Bloomberg Television's "Street Smart." Stutland Equities LLC's Dan Deming also speaks. (Source: Bloomberg)
Aug. 30 (Bloomberg) -- Mohamed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., discusses the outlook for U.S. economy and Pimco's investment strategy. El-Erian talks with Tom Keene and Ken Prewitt on Bloomberg Radio's "Bloomberg Surveillance." (This is an excerpt. Source: Bloomberg)
Aug. 30 (Bloomberg) -- Al Broaddus, former president of the Federal Reserve Bank of Richmond, talks about the Fed's handling of the U.S. economy and possible options available to spur growth. Broaddus speaks with Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Aug. 30 (Bloomberg) -- Adrian van Tiggelen, chief strategist at ING Investment Management in the Hague, talks about the outlook for stocks and last week's rally after Fed Chairman Ben S. Bernanke pledged to safeguard the economic recovery. He speaks with Mark Barton on Bloomberg Television's "Countdown." ING Investment Management oversees about $465 billion in assets (Source: Bloomberg)
U.S. stocks fell, erasing the previous session’s advance, after a smaller-than-forecast gain in personal incomes added to concern the economic rebound may slow further.
Bank of America Corp., Home Depot Inc. and American Express Co. lost at least 2.4 percent to help lead the Dow Jones Industrial Average lower after government data showed income growth failed to keep up with the biggest increase in consumer spending since March. Intel Corp. slipped 2.2 percent after agreeing to buy Infineon Technologies AG’s wireless unit for about $1.4 billion.
The Standard & Poor’s 500 Index slipped 1.5 percent to 1,048.92 as of 4 p.m. in New York. The Dow fell 140.92 points, or 1.4 percent, to 10,009.73. On U.S. stock exchanges, 5.79 billion shares changed hands, the fewest this year.
“The increase in spending in July was encouraging, it was slightly better than expected, but the drop in disposable income raises further questions about the sustainability of that spending increase,” said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees $63 billion. “The report reinforces the belief that organic economic growth remains lackluster and the recovery is fragile.”
Financial companies, chipmakers and retailers led declines in all 24 industry groups in the S&P 500 after government data showed personal incomes climbed 0.2 percent in July, less than the 0.3 percent projected in a Bloomberg survey of economists. Personal spending rose 0.4 percent, Commerce Department figures showed. Disposable incomes, or the money left over after taxes, dropped for the first time since January after adjusting for inflation.
Cisco, Home Depot
Bank of America, the biggest U.S. bank by assets, slumped 2.5 percent to $12.32, the lowest in 13 months. Home Depot, the largest home-improvement retailer, decreased 2.6 percent to $27.99. American Express tumbled 2.5 percent to $39.89.
Intel slipped 41 cents to $17.96. The world’s largest chipmaker agreed to buy Infineon’s wireless unit, gaining a foothold in the mobile-phone business it has struggled to crack for more than a decade. The all-cash transaction is expected to close in the first quarter of 2011, Infineon, Europe’s second- largest semiconductor maker, said today.
Lockheed Martin Corp. fell 2 percent to $70.22. The world’s largest defense contractor was downgraded to “market perform” from “outperform” at Wells Fargo Securities LLC.
Analyst Calls
Texas Instruments Inc. declined 3.7 percent to $23.25. The second-largest U.S. chipmaker was downgraded to “neutral” from “positive” at Susquehanna Financial Group, which cited “broad macro weakness.”
KeyCorp fell 4.1 percent to $7.27, pacing losses among banks, after Collins Stewart Inc. reduced its 12-month price target to $9 from $10, citing “weak core profitability and dependence on reserve release.”
DG Fastchannel Inc. plunged 38 percent to $15.11, the most in the Russell 2000 Index. The operator of an electronic network linking advertising agencies with television and radio stations said it terminated a 2007 credit agreement and plans talks with lenders to negotiate a new credit line. The company also said third-quarter revenue won’t exceed $53 million, falling short of the $61.5 million average analyst estimate, according to Bloomberg data.
The S&P 500 erased almost all of its 1.7 percent rally from Aug. 27 when Federal Reserve Chairman Ben S. Bernanke vowed to safeguard the economy. The S&P 500 still dropped 0.7 percent last week as disappointing home sales bolstered concern the recovery is at risk. The gauge has tumbled 14 percent from its 2010 peak on April 23.
Reduced Forecast
Barclays Capital reduced its year-end S&P 500 forecast for 2010 to 1,120 from 1,220 late Aug. 27, saying “the market- implied probability of recession increases.”
“We haven’t given up on a late-2010 rally,” wrote New York-based Barclays strategist Barry Knapp in a note to clients. “However, a number of factors will need to fall into place,” he said, including an extension of the Bush tax cuts, a change in control of Congress and a return of the Fed’s asset-buying program known as “quantitative easing.”
Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., said on Bloomberg Radio and TV that the Fed is “carrying too much of the burden” in the economic recovery.
“I think the most important thing right now is not just to be worried about the return on your capital, but also to be worried about the return of your capital," said El-Erian, who is based in Newport Beach, California. "So we would say be cautious, there will be a lot of opportunities down the road to deploy dry powder, but be cautious at this stage,” he said.
Economy, Bernanke
Investors will also get reports on manufacturing and payrolls later in the week to assess whether the economic rebound is faltering.
Speaking at the Fed’s annual conference in Jackson Hole, Wyoming on Aug. 27, Bernanke said the central bank has the tools to prevent the U.S. economy from slipping back into a recession, while stopping short of indicating an immediate need for more stimulus.
Analysts are turning more pessimistic even as they push up estimates for profit growth among S&P 500 companies to 36 percent, the highest since 1988. For the first time since at least 1997, fewer than 29 percent of ratings for stocks covered by brokerages worldwide are “buys,” according to almost 160,000 recommendations compiled by Bloomberg.
‘Not Reacting Positively’
“We will continue to struggle with: Is the pace continuing to slow further or is that pace continuing to pick up?” said Timothy Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York, which manages $2 billion. “Bigger news we’re seeing today is continued acceleration in M&A. It’s not reacting positively to it in the overall market, which is somewhat surprising. There is this overhang about macroeconomic issues.”
Genzyme Corp. advanced 3.4 percent to $69.91, the most in the S&P 500, after France’s Sanofi-Aventis SA made an $18.5 billion cash offer for the U.S. biotechnology company. Sanofi offered to buy the company for $69 a share in cash, taking its bid public after the U.S. company refused to negotiate. Genzyme shares have gained 43 percent in New York trading this year.
Cogent Inc. surged 24 percent to $11.09. 3M Co. said it agreed to buy the maker of biometric devices for $10.50 a share. The deal is valued at about $943 million, or about $430 million net of cash, the companies said. 3M fell 1.7 percent to $79.65.
Hewlett-Packard, Airlines
Hewlett-Packard Co. rallied 1.5 percent to $38.56. The personal-computer maker that’s engaged in a $2 billion bidding war for data-storage provider 3Par Inc. said its board approved an additional $10 billion for share repurchases.
UAL Corp. gained 1.3 percent to $20.71. The U.S. government cleared the merger to create the world’s largest carrier between the owner of United Airlines and Continental Airlines Inc. The $3 billion all-stock deal awaits shareholder approval next month. Continental advanced 2.6 percent to $22.36.
AMR Corp. climbed 2.2 percent to $6.17. Emirates Airline President Tim Clark denied speculation his company may buy a stake in the owner of American Airlines.
Noble Energy Inc. rose 2 percent to $68.56 for the second- biggest gain in the S&P 500. The oil and natural-gas producer was raised to “outperform” from “market perform” at BMO Capital Markets Ltd., which cited “the oil-prone resource potential of the Niobrara found in Colorado and parts of Wyoming now being aggressively exploited by Noble.”
QLogic Corp. rose 0.9 percent to $14.94. The supplier of chips and switches for corporate networks said its board authorized a program to repurchase up to an additional $200 million of the company’s outstanding common stock over a period of up to two years.
To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net.
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