The Standard & Poor’s 500 Index fell, after trimming steeper declines, as speculation European leaders will announce new steps to tame the debt crisis tempered concern the economic recovery is slowing.
Apple Inc. climbed 1.5 percent amid speculation the company is close to introducing a new iPhone with a larger screen and thinner body. Morgan Stanley added 3.4 percent after the shares were upgraded at CLSA Ltd. Netflix Inc. slumped 6.4 percent as Amazon.com Inc. reached a deal with pay-television channel Epix. Facebook Inc. fell 1.8 percent to a record low after Morgan Stanley cut its price forecast on the company’s shares.
The S&P 500 lost 0.1 percent to 1,404.94 at 4 p.m. New York time, trimming a drop of as much as 0.7 percent. The Dow Jones Industrial Average retreated 54.90 points, or 0.4 percent, to 13,035.94. Volume for exchange-listed stocks in the U.S. was 5.6 billion shares, or 7.3 percent below the three-month average.
The European Central Bank’s plans “to stabilize Europe takes the big-event risk off the table,” Frank Ingarra, who helps manage $1.4 billion at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview. “Everyone is kind of digesting and getting back to the game today,” he said. As speculation about Europe swirls, he said, “people are happier that it’s happening now and willing to go long equities.”
ECB President Mario Draghi said the bank’s primary mandate compels it to intervene in bond markets to wrest back control of interest rates and ensure the euro’s survival. Draghi “appears willing to write two- to three-year ‘checks’” to debt-strapped euro-bloc nations in a reflationary move, Bill Gross, co-chief investment officer and founder of Pacific Investment Management Co., said in a Twitter post.
Draghi is due to distribute his bond-purchasing plan to national banks after he was said to tell officials he would be comfortable buying three-year government bonds to lower borrowing costs.
Equities fell earlier as the Institute for Supply Management’s U.S. factory index showed U.S. manufacturing shrank for a third month in August in the longest decline since the recession ended in 2009. A report over the weekend showed China’s manufacturing contracted at the fastest pace since March 2009.
“Economic data continues to be soft all over the world and that’s just the basic reality,” John Kattar, chief investment officer at Eastern Bank Wealth Management in Boston, which manages $1.7 billion, said in a telephone interview. “But more important than that is speculation on what the ECB is going to do this week and what the Fed is going to do next week,” he said, referring to policy meetings by the ECB and the Federal Reserve.
The S&P 500 rose 2 percent in August, capping its longest monthly rally since March, amid expectations global central banks would stimulate the economy. Fed Chairman Ben S. Bernanke said on Aug. 31 at an annual forum in Jackson Hole, Wyoming, that he wouldn’t rule out steps to lower a jobless rate he described as a “grave concern.” Payrolls probably grew at a slower pace in August and unemployment exceeded 8 percent for a 43rd month, economists said before a report this week. The Federal Open Market Committee meets Sept. 12-13.
Apple climbed 1.5 percent to $674.97 today. The world’s most valuable company sent out invitations to a Sept. 12 product event in San Francisco, where it’s expected to unveil a redesigned iPhone. “It’s almost here,” Apple said in the invitation, whose image includes a ‘5’ in shadow, possibly in reference to the new product’s name.
Morgan Stanley added 3.4 percent to $15.51. The stock’s rating was boosted to buy from outperform at CLSA by equity analyst Michael Mayo. The 12-month share-price estimate is $23.
GameStop Corp. advanced 7 percent, the most in the S&P 500, to $20.41. The electronic game and software company was raised to buy from neutral at Goldman Sachs Group Inc.
Valeant Pharmaceuticals International Inc. rallied 15 percent to $58.78 after agreeing to buy Medicis Pharmaceutical Corp. for $2.6 billion. Canada’s largest publicly traded drugmaker said yesterday it will pay $44 in cash for each share of Scottsdale, Arizona-based Medicis. Medicis surged 38 percent to $43.65.
ConAgra Foods Inc. rose 2.2 percent to 25.65, leading consumer staples in the S&P 500 to a 0.4 percent increase. The maker of Hebrew National hot dogs and Orville Redenbacher’s popcorn was raised to overweight, the equivalent of buy, from neutral at JPMorgan Chase & Co.
Commodities and industrial companies fell the most among the 10 S&P 500 groups. Caterpillar Inc., the world’s largest maker of construction and mining machines, dropped 3.1 percent to $82.66 for the biggest retreat in the Dow. Cliffs Natural Resources Inc., the largest U.S. iron-ore producer, slipped 6 percent to $33.68.
Alpha Natural Resources Inc. fell 6.9 percent to $5.53 while Peabody Energy Corp. dropped 3.4 percent to $20.90. The companies were cut to hold from buy at Dahlman Rose, which lowered its outlook for metallurgical coal used in steelmaking.
Netflix Inc. slumped 6.4 percent to $55.93. Amazon.com reached a deal with Epix to add movies such as “The Hunger Games” to the roster of films available through Amazon Prime Instant Video, ratcheting up competition with Netflix.
Nvidia Corp. slid 6.4 percent to $13.28. The maker of graphics processors was cut to neutral from positive at Susquehanna Financial Group LLP.
Facebook Inc. fell 1.8 percent to a record low of $17.73. Morgan Stanley, a lead underwriter of the company’s initial public offering, cut its price forecast on concern that the social network is struggling to reach mobile users with ads. Scott Devitt, an analyst at Morgan Stanley in New York, expects Facebook shares to reach $32 in the next 12 months, down from his previous projection of $38. Facebook has lost more than half its value since its May IPO.
Jonathan Golub, chief U.S. equity strategist of UBS AG, lowered his estimates for S&P 500 profits in 2012 and next year, citing a weaker outlook for the world’s largest economy, slower growth overseas, a strengthening dollar and difficult operating environment for financial companies. His projection for combined earnings by companies in the benchmark equity index this year is now $102.50 a share, down from $103.50. He cut his estimate for profit in 2013 to $107 from $110.
Profits are moving U.S. equity prices more than any time since the bull market began 3 1/2 years ago, rewarding investors for picking stocks based on company data instead of following the herd rocked by Europe’s crisis and the slowing U.S. economy.
Companies in the S&P 500 rose or fell an average of 4.4 percent the day after releasing results since July, according to data compiled by Bloomberg. The last time they moved more was in the second quarter of 2009. Daily swings in the benchmark gauge narrowed to 0.4 percent last month from 2.2 percent a year ago, as economic and policy changes battered investors. More than 475 S&P 500 stocks moved in the same direction in six of the first nine days of August 2011, with all 500 down on Aug. 8.
Bulls say lockstep moves are diminishing because investors are changing their behavior, making choices based on corporate results at a time when analysts estimate profits for companies in the S&P 500 will rise almost 10 percent a year through 2014. Bears say the focus on earnings won’t bring back individuals who have drained more than $420 billion from U.S. equity mutual funds over the past four years even as stocks rallied 108 percent since March 2009 and net income was unchanged in the second quarter.
“I’m not saying it’s an easy job to be a stock picker in this environment, but it’s certainly easier,” Sandy Lincoln, the Chicago-based chief market strategist with BMO Global Asset Management, which oversees about $100 billion, said in an Aug. 28 interview. “Stock selection does have the opportunity here to finally show a face with a smile.”