U.S. stocks reversed losses as the cheapest price-to-earnings valuation for the Standard & Poor’s 500 Index in six months overshadowed a drop in factory orders.
Amazon.com Inc. and Starbucks Corp. advanced at least 3 percent to pace gains in consumer discretionary companies. Chesapeake Energy Corp. rallied 6 percent on plans to replace almost half its board under pressure from billionaire investor Carl Icahn. Caterpillar Inc. and JPMorgan Chase & Co. retreated more than 2.6 percent. Facebook Inc. declined 3 percent to the lowest price since the stock began trading at $38 last month.
The S&P 500 rose less than 0.1 percent to 1,278.18 at 4 p.m. New York time, after dropping as much as 0.9 percent. The Dow Jones Industrial Average retreated 17.11 points, 0.1 percent, to 12,101.46. About 7.1 billion shares changed hands on U.S. exchanges, or 5 percent above the three-month average.
“It’s very easy to get depressed,” said Frances Hudson, global thematic strategist who helps manage $256.6 billion at Standard Life Investments in Edinburgh. She spoke in a phone interview. “We’ve been having mixed data signals. If your time horizon is longer, you’re in a better position to work these things out. Then you can step back from the noises.”
The S&P 500 started the session trading at 12.9 times its companies’ reported earnings, the lowest valuation since November. It dropped 9.9 percent from a four-year high on April 2 through last week amid concern Europe’s debt crisis was worsening and global economic growth was slowing.
Earlier losses in U.S. stocks today extended the S&P 500’s drop from its peak to more than 10 percent as government data showed factory orders fell 0.6 percent in April, pointing to a deceleration in manufacturing. China’s non-manufacturing industries expanded at the slowest pace in more than a year.
“It’s a function of things having gotten oversold and due for a rally at some point,” said Michael James, a managing director at Wedbush Securities Inc. in Los Angeles.
Seven out of 10 groups in the S&P 500 advanced as phone, consumer discretionary and technology shares had the biggest gains. Amazon.com, the world’s largest Internet retailer, jumped 3.1 percent to $214.57. Starbucks, the world’s largest coffee-shop chain, added 3.4 percent to $53.90.
Chesapeake Energy rallied 6 percent to $16.52. Four of the company’s eight non-executive directors will be replaced with nominees of the largest shareholders, Southeastern Asset Management Inc. and Icahn. Icahn triggered the overhaul by acquiring a 7.6 percent stake last month to rein in what he saw as Chairman and Chief Executive Officer Aubrey McClendon’s risk-taking and overspending that led to a $22 billion cash crunch and eroded the share price.
An intensifying financial crisis in Spain or elsewhere in Europe has the potential to drive U.S. stocks into a bear market, Goldman Sachs Group Inc.’s chief U.S. equity strategist said. While David Kostin’s mid-year forecast for the S&P 500 calls for a 3.7 percent gain from last week’s close to 1,325, the measure may fall to 1,125 should the situation in Europe worsen. That would give the S&P 500 a more-than 20 percent loss since its 2012 closing peak of 1,419.04.
The June 1 report from Goldman Sachs said the most likely scenario is Greek elections resulting in the nation remaining in the euro zone. Concern it will leave has helped drag the S&P 500 down since April 2, including the biggest monthly decline since September. “Financial contagion or crisis in Spain” could prompt a bear market, according to the report.
Caterpillar, the largest maker of construction and mining equipment, dropped 2.6 percent to $83.26. JPMorgan fell 2.9 percent to $31. Morgan Stanley tumbled 2.9 percent to $12.36, the lowest since 2008.
Facebook slumped 3 percent to $26.90 and went as low as $26.44, after tumbling 13 percent last week. The world’s biggest social network dropped after Sanford C. Bernstein & Co. initiated coverage with an underperform rating and a $25 share-price estimate.
“It is difficult to argue for owning the stock today,” said Carlos Kirjner, an analyst at Bernstein in New York, in a research report today.
The Bloomberg U.S. Airlines Index tumbled 7.5 percent as Delta Air Lines Inc. sank 12 percent to $10.18. The company missed a revenue projection as competitors cut fares just before the start of the peak season for U.S. vacation travel.
Regions Financial Corp. slid 5.6 percent to $5.55, the lowest since February. The Birmingham, Alabama-based bank was downgraded to hold from buy at Deutsche Bank AG on June 1. The 12-month share-price estimate is $6.50 per share.