U.S. stocks fell, paring a monthly gain for the Standard & Poor’s 500 Index, as fewer Americans signed contracts in June to buy previously owned homes.
Energy stocks and financial companies lost more than 0.7 percent for the biggest declines among 10 industries in the S&P 500. Perrigo Co. fell 6.8 percent after saying it will buy Irish drugmaker Elan Corp. for $8.6 billion. Facebook Inc. (FB) gained 4.2 percent to the highest price since May 2012, the month of its public offering, amid optimism over mobile ad sales.
The S&P 500 slipped 0.4 percent to 1,685.33 at 4 p.m. in New York. The equity benchmark lost less than 0.1 percent last week, halting its longest streak of weekly gains since May 17. The Dow Jones Industrial Average dropped 36.86 points, or 0.2 percent, to 15,521.97 today. About 5.19 billion shares changed hands, 18 percent below the three-month average.
“Some of the economic data appears softer than we anticipated,” Eric Teal, who helps oversee $5 billion as chief investment officer at First Citizens BancShares Inc., said via phone from Raleigh. “Some pause might be in order over the next few months after the strong gains the first half of the year.”
The S&P 500 has climbed 4.9 percent this month. The benchmark index surged 149 percent since March 2009, driven by better-than-estimated corporate earnings and three rounds of bond purchases by the U.S. central bank. The gauge fell in June, after seven consecutive months of gains, as investors examined economic data to assess when the Federal Reserve will reduce its $85 billion of monthly bond purchases.
The Fed has said economic data will determine the timing and pace of any reduction in its asset purchases. The central bank will probably maintain its benchmark interest rate at 0.25 percent after concluding its two-day policy-setting meeting on July 31, economists predicted. The Fed will begin to reduce its bond-purchase program in September, according to economists surveyed by Bloomberg.
Fewer Americans signed contracts in June to buy previously owned homes, showing rising mortgage rates are beginning to restrain the housing market. The index of pending home sales dropped 0.4 percent, less than forecast, to 110.9 in June after climbing a month earlier to the highest level since December 2006, figures from the National Association of Realtors showed today in Washington. The median forecast in a Bloomberg survey of 40 economists called for a 1 percent decline.
The week will offer further clues to the state of the economy, with the release of data on U.S. gross domestic product and the monthly labor report, as well as monetary policy announcements by the Fed and the European Central Bank.
Investors will also watch this week’s earnings from more than 130 companies listed on the S&P 500. Of the 269 companies in the S&P 500 that have posted results so far this earnings season, 73 percent have exceeded analysts’ estimates for profit and 56 percent have beaten sales projections, data compiled by Bloomberg show.
“It’s still the case that macro is driving markets at the moment,” Ramin Nakisa, an asset allocation strategist at UBS AG in London, told Francine Lacqua on Bloomberg Television. “We are entering a world in which rates are rising, and the Fed’s going to taper. There may be higher volatility, but there will be a bigger appetite for risk. Now we’re seeing a rotation into cyclicals, so markets are saying we want growth.”
The Chicago Board Options Exchange Volatility Index, or VIX, climbed 5.3 percent to 13.39, after adding 1.4 percent last week. The equity volatility gauge reached its highest level this year in June and has since fallen 35 percent.
Energy and financial stocks fell 0.8 percent each. Exxon Mobil Corp. slipped 0.8 percent to $94.03 and Chevron Corp. slumped 1.1 percent to $126.17. Bank of America Corp. lost 1.4 percent to $14.52 for the biggest decline in the Dow (INDU) while JPMorgan Chase & Co. declined 0.6 percent to $55.69.
Chesapeake Energy Corp., the second-biggest U.S. natural-gas producer after Exxon, dropped 0.4 percent to $22.75. Gas futures slumped in New York to the lowest price in 21 weeks on forecasts for mild weather, after tropical storm Dorian fell apart in the Atlantic.
Perrigo lost 6.8 percent to $125.17 today. The maker of over-the-counter medicines will pay holders of Elan’s American depositary receipts $16.50 per ADR in cash and stock, according to a joint statement today. That’s 11 percent greater than the July 26 closing price for the ADRs. Elan rose 3.6 percent to $15.46 in U.S trading.
Omnicom Group Inc. slipped 0.6 percent to $64.75, reversing an earlier rally of as much as 8.3 percent, after agreeing to merge with Publicis to create a company with revenue of $23 billion and a market value of $35 billion. The shareholders of Publicis and Omnicom will each hold about 50 percent of the new entity, Publicis Omnicom Group.
The combined business will use its scale to negotiate better advertising rates for its clients. Publicis’s Chief Executive Officer Maurice Levy and Omnicom’s CEO John Wren will jointly run Publicis Omnicom.
Interpublic Group of Cos. jumped 4.7 percent to $16.61.
AT&T Inc. rose 0.8 percent to $35.88 as phone stocks advanced the most in the S&P 500.
Saks Inc. added 4.2 percent to $15.95. Toronto-based Hudson’s Bay Co. will buy the luxury department-store retailer for $16 a share in cash, or $2.4 billion, according to a joint statement today.
Facebook gained 4.2 percent to $35.43, the highest price since the month of its initial public offering. The world’s largest social network last week reported that ads on smartphones and tablets generated 41 percent of revenue in the second quarter, up from 14 percent a year earlier.
Caterpillar Inc. rose 1.2 percent to $83.02 for the biggest gain in the Dow. The largest maker of mining equipment said it will buy back $1 billion of common stock from Societe Generale.
Pfizer Inc. added 0.6 percent to $29.54. The world’s biggest drugmaker said it will split up its three major internal businesses and shuffle the management that leads them, part of the company’s preparation for a further break up.
U.S. financial companies, fueled by the fastest earnings growth in the S&P 500, are poised to reclaim their position as the market’s biggest industry for the first time since the credit crisis.
Banks, brokers and insurance companies make up 16.8 percent of the S&P 500, almost double the level from 2009 and closing in on technology companies at 17.6 percent, according to data compiled by Bloomberg. Bank of America and Morgan Stanley are helping lead gains in the index this month after profits topped analyst estimates. Intel Corp. and Microsoft Corp. are among the worst after earnings trailed forecasts.
For bulls, the change signals banks will lead the economy even after the Fed begins to reduce stimulus. Bears say S&P 500 profits would be down this quarter if not for banks. They note that the last time financials were the biggest industry was in 2008 and the consequences were disastrous.
“The fact that we are seeing banks perform reasonably well provides a certain sense of confidence in the underlying economy,” Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees about $130 billion, said in a July 25 phone interview. “Without the financials working, it would be hard to imagine that all the rest would be working at all.”
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