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U.S. Stocks Fall From Record as Energy Producers Tumble

Sept. 2 (Bloomberg) -- Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi, examines how geopolitical risks have impacted European economies and the reaction of bond and equity markets. He speaks on “Bloomberg Surveillance.”

U.S. stocks fell, after the Standard & Poor’s 500 Index had its best month since February, as energy producers sank with the price of crude to offset data showing U.S. manufacturing expanded at the fastest pace in three years.

Newfield Exploration Co. slid 2.1 percent as energy companies dropped 1.3 percent as a group. Delta Air Lines Inc. and Southwest Airlines Co. rallied at least 2.8 percent to lead carriers higher. Home Depot Inc. dropped 2 percent after saying it was investigating a possible data breach. Staples Inc. jumped 8.1 percent after Credit Suisse Group AG raised its rating on the stock.

The S&P 500 lost 0.1 percent to 2,002.28 at 4 p.m. in New York, trimming earlier losses of 0.4 percent in afternoon trading. The Dow Jones Industrial Average slipped 30.89 points, or 0.2 percent, to 17,067.56. The Nasdaq Composite Index rose 0.4 percent, extending its highest level since March 2000. More than 5.7 billion shares changed hands on U.S. exchanges today, snapping an nine-day streak of volume below 5 billion shares.

“The 2,000 area is still in play, and we’ve yet to move past it convincingly as it remains a speed bump in the short-term,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said by phone. “The manufacturing index was better than expected, but after that strong rally we had through much of August, the market is taking a bit of a breather.”

The Institute for Supply Management’s manufacturing index unexpectedly climbed to 59, the highest level since March 2011, from July’s 57.1, the Tempe, Arizona-based group reported today. Readings greater than 50 indicate growth. The median forecast in a Bloomberg survey of economists was 57.

Global Data

The news on manufacturing was less positive overseas as U.K. factory growth slowed more than forecast last month and Italian manufacturing shrank as Europe suffered the fallout from weakening demand and mounting geopolitical risks. Output growth in China also slowed.

The S&P 500 jumped 3.8 percent in August, climbing above 2,000 for the first time, amid improving economic data and speculation the Federal Reserve will keep interest rates low even as the economy shows signs of strengthening. The gauge has advanced 8.1 percent in 2014.

The economy expanded more than previously forecast in the second quarter, propelled by the biggest gain in business investment in more than two years, the Commerce Department reported last month. A Labor Department report on Sept. 5 will show payrolls rose by more than 200,000 in August for a seventh-straight month, a Bloomberg survey of economists showed.

Accelerating Economy

“Overall, data supports the idea that the economy is accelerating going into the second half of the year, which certainly helps the equity markets,” Kevin Caron, who helps oversee $170 billion at Stifel Nicolaus & Co. in Florham Park, New Jersey, said in a phone interview. “You’ve had investors who have been increasingly encouraged by the direction of the data in the economy. They’ve been discouraged from holding assets in low-yielding, safer assets.”

The S&P 500’s rally isn’t over and the gauge could jump 50 percent more by 2020 as the U.S. economic recovery heads for a record winning streak, according to Morgan Stanley.

A slower though sustained period of growth could help the equity benchmark gauge peak near 3,000, according to a report today. The world’s largest economy, which began recovering in July 2009, may continue growing for five years or more, making it the longest period of expansion, Morgan Stanley said.

Ukraine Conflict

In Ukraine, the government warned of an escalating conflict in its easternmost regions, even as U.S. President Barack Obama headed to eastern Europe to reassure NATO members. Ukraine and its allies in the U.S. and Europe accuse Russia of dispatching troops and backing separatist militias to open a new front in the conflict. Russia has repeatedly denied involvement in the unrest.

“U.S. investors will try to focus on the economic agenda of the day, while geopolitical issues remain in the background,” Stephane Ekolo, chief European strategist at Market Securities in London, wrote in an e-mail.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P options prices known as the VIX (VIX), rose 2.3 percent to 12.25. The gauge lost 29 percent in August, the biggest monthly drop in almost three years.

Energy Slump

Five of the 10 main S&P 500 groups retreated, with energy stocks falling 1.3 percent to pace declines. Newfield Exploration and Noble Corp. slid at least 2.1 percent as the price of West Texas Intermediate crude slumped. Chevron Corp. lost 1.5 percent.

Home Depot sank 2 percent to $91.15, halting a five-day rally. The largest home-improvement chain said it was working with banks and law enforcement to investigate the possible breach.

The Nasdaq 100 Index rose 0.3 percent to a 14-year high as Regeneron Pharmaceuticals Inc., Staples and Tesla Motors Inc. rallied.

Regeneron gained 2.6 percent to $359.50, an all-time high. The cholesterol drug that the company is developing with Sanofi cut levels of heart disease-causing fat in four studies, according to results released over the weekend.

Dollar Stores

Staples climbed 8.1 percent to $12.63, the highest since May. The world’s largest office-supply chain was raised to outperform from neutral at Credit Suisse.

Tesla rose 5.4 percent to $284.12, an all-time high. A Stifel Nicolaus & Co. report cited the electric-car maker’s increasing production and said it may be worth $400 a share even before it starts making a lower-priced model.

Dollar General Corp. added 0.6 percent to $64.36. The retailer said today that it raised its offer for smaller rival Family Dollar Stores Inc. to $80 a share in cash, compared with an initial $78.50 bid. Family Dollar Stores rose 0.5 percent to $80.22.

Norwegian Cruise Line Holdings Ltd. surged 11 percent to $36.99 after agreeing to acquire Prestige Cruises International Inc. for about $3.03 billion. Prestige is owned by private equity firm Apollo Global Management LLC (APO), which also holds a 20 percent stake in Norwegian.

Compuware Corp. shares climbed 13 percent to $10.59. The company will be acquired by private equity firm Thoma Bravo LLC in a deal valued at $2.5 billion.

Exelixis Inc. slumped 55 percent to $1.85. A trial for its cabozantinib treatment for prostate cancer failed to meet its aim of showing an increase in survival rates compared with another drug. The company said it will reduce its workforce by about 70 percent to focus its financial resources on other clinical trials for cabozantinib.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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