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U.S. Stocks Rise After Two-Day Drop, Led by Monsanto, CBS

U.S. stocks rose for the first time in three days as investors speculated the economy is recovering from a first-quarter contraction and Monsanto Co. announced a $10 billion stock buyback plan.

Monsanto, the largest seed company, rallied 5.1 percent. CBS Corp. (CBS) jumped 6.2 percent after the U.S. Supreme Court ruled that Aereo Inc. is violating broadcaster rights. Oil refiners such as Valero Energy Corp. and Marathon Petroleum Corp fell after the U.S. Commerce Department opened the door to more crude exports.

The Standard & Poor’s 500 Index added 0.5 percent to 1,959.53 at 4 p.m. in New York, rebounding after a 0.6 percent drop yesterday. The U.S. equity benchmark is up 1.9 percent in June, poised for a fifth month of gains. The Dow Jones Industrial Average climbed 49.38 points, or 0.3 percent, to 16,867.51 today. The Russell 2000 Index was up 0.8 percent.

“The market is partying on,” Sam Wardwell, an investment strategist at Pioneer Investments in Boston, said in a phone interview. His firm manages about $247 billion. “If you think about it over a slightly longer-term basis, Fed tightening is not on the horizon, corporate outlook is fine, and if you look at dividend yields, stocks are attractive from a valuation point of view.”

Profits as a percentage of the S&P 500’s price, known as earnings yield, total 5.6 percent, exceeding the 2.6 percent yield on the 10-year Treasury note, according to data compiled by Bloomberg. The U.S. equity benchmark pays 1.9 percent in dividends.

U.S. stocks are poised for the third-slowest month in six years. About 5.6 billion shares have changed hands each day in June, trailing every month since 2008 except for the previous two Augusts, data compiled by Bloomberg show.

Russell Rebalance

Trading is likely to get a boost on June 27, when Russell Investments concludes the annual revisions to its equity benchmark gauges. Russell’s U.S. stock indexes, including the Russell 1000 Index and the Russell 2000, are used as benchmarks for $5.2 trillion in assets, according to the company’s website. In the previous two years, the reconstitution day ranked in the top two busiest trading sessions, data compiled by Bloomberg show.

With the end of the quarter approaching, investors should expect about $20 billion in selling of equities and some buying of bonds as pension fund managers rebalance their portfolios, Boris Rjavinski, a strategist at UBS AG, estimated in a June 23 report.

Economic Data

Economic data today showed that the U.S. gross domestic product shrank 2.9 percent in the first quarter, the worst reading since 2009. Orders for business equipment climbed in May, a sign that corporate investment is helping revive the economy after a slump at the start of the year. Monsanto (MON) also raised its full-year earnings forecast and posted better-than-expected fiscal third-quarter profit.

Americans returned to stores and car dealerships, companies placed more orders for equipment and manufacturing picked up as temperatures warmed, indicating the early-year setback was temporary. Combined with more job gains, such data underscore the view of Federal Reserve policy makers that the economy is improving and in less need of monetary stimulus.

Bookings for non-military capital goods excluding aircraft rose 0.7 percent after a 1.1 percent drop in April, data from the Commerce Department showed. Demand for all durable goods -- items meant to last at least three years -- decreased 1 percent, reflecting declines in the volatile transportation and defense categories.

‘Good Story’

“What’s important in goods is the non-defense capital orders, which are essentially a proxy for business spending,” Darrell Cronk, New York-based deputy chief investment officer at Wells Fargo Private Bank, said in a phone interview. Cronk helps oversee $170 billion. “When you factor in the numbers, that’s a good story that suggests in May there was bump in business spending.”

The CBOE OEX Volatility Index, also known as the old VIX, fell 6 percent to 9.76. Two days ago, the index fell to 8.9, its first close below 9 since calculations started in 1986.

Pacific Investment Management Co.’s theory of the “new neutral” led traders to speculate that the money manager sold S&P 500 options in April and May to benefit from stable prices, according to four people who heard about the trading and asked not to be named. Pimco’s chief investment officer, Bill Gross, declined to discuss specific trades in an interview last week.

Monsanto, CBS

Monsanto climbed 5.1 percent to $126.73. The company raised its fiscal full-year forecast for ongoing earnings to $5.10 to $5.20 a share from $5 to $5.20 previous. Net income was $1.62 a share, beating the $1.55 average of analysts’ estimates compiled by Bloomberg.

CBS advanced 6.2 percent to $62.48. The Supreme Court’s 6-3 ruling is a triumph for broadcast companies. They said Aereo was threatening the underpinnings of the industry by selling programming online without paying licensing fees.

Bristol-Myers Squibb Co. gained 3 percent to $49.73 after stopping a late-stage study of a top experimental drug after skin cancer patients showed “superior overall survival.” The company said it’s testing nivolumab in more than 35 studies against multiple tumor types.

Schlumberger Ltd. jumped 6.4 percent to $113.85, for the biggest gain since November 2011. Chief Executive Officer Paal Kibsgaard said in a company webcast that earnings for the largest energy service company by market capitalization may reach $10 a share in 2017.

Oil Refiners

Oil refiners fell as the Commerce Department widened its definition of what’s traditionally been considered a refined product eligible for shipping to customers abroad. That means more of the oil being pumped from U.S. shale formations may be eligible for export after being run through small-scale processing units.

Valero (VLO), which owns and operates refineries in the U.S., Canada and Aruba, fell 8.3 percent to $51.35, the biggest decline since November 2011. Marathon Petroleum lost 6.3 percent to $80.97.

General Mills Inc. retreated 3.6 percent to $51.76 for a fourth day of losses. The company reported quarterly earnings that trailed analysts’ estimates and said it began a review of its North American manufacturing and distribution network as part of a wider effort to reduce costs.

ImmunoGen Inc. fell 8.2 percent to $12.04. Morgan Stanley rated shares of the biotechnology company at underweight, similar to a sell recommendation, with a price estimate of $10.

To contact the reporter on this story: Oliver Renick in New York at orenick2@bloomberg.net

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

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