U.S. Stocks Trim Monthly Gain as Data Raise Concern on Economy

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Bullard: Fed Should Raise Rates as Economy Improves

U.S. stocks declined, with equities paring their best monthly gains since February, as May economic data raised concern over the strength of the economy after a first-quarter contraction.

Transportation companies dropped for the fourth time in five sessions as railroads extended declines, and financial shares fell for a second day. Humana Inc. jumped 20 percent after it was said to be exploring a sale. Altera Corp. added 4 percent amid reports Intel Corp. is near a deal to buy the company for about $15 billion.

The Standard & Poor’s 500 Index slipped 0.6 percent to 2,107.39 at 4 p.m. in New York. The benchmark posted its first weekly drop in four. The Dow Jones Industrial Average fell 115.44 points, or 0.6 percent, to 18,010.68, and the Nasdaq Composite Index lost 0.6 percent. About 7.2 billion shares changed hands on U.S. exchanges, 12 percent above the three-month average.

“GDP is kind of an old story -- we already knew it contracted, but the Chicago PMI number came in unexpectedly low,” said Kevin Caron, a market strategist and portfolio manager who helps oversee $170 billion at Stifel Nicolaus & Co. in Florham Park, New Jersey. “It could be that the market was hoping for a better number, and didn’t get the support it wanted. There’s conflicting data on the strength of the economy.”

A gauge today showed Chicago-area manufacturing activity contracted this month to its lowest level since February, raising concerns that the rebound from a weak first quarter lacks vitality. Data earlier also showed gross domestic product in the U.S. shrank, amid harsh winter weather, a strong dollar and delays at ports. A separate report said consumer sentiment in May fell the most since the end of 2012.

Soft Data

“The Chicago PMI headline was exceedingly soft,” said Mark Luschini, chief investment strategist in Philadelphia at Janney Capital Management LLC, which oversees about $68 billion. “Investors are chalking up softer economic data to a lot of anomalous factors in the first quarter, but this was a May read. That collectively is weighing on the markets at a time when there’s no impetus to buy.”

The S&P 500 still advanced 1.1 percent this month, and closed at a fresh record last week. The Nasdaq Composite and the Dow also rose to all-time highs in May. Along with readings on the economy, investors today were watching Europe as stocks there declined for a second day on concern Greece won’t reach an agreement with creditors in time for a debt repayment.

Temporary Setback

Economists forecast growth will rebound enough from the first-quarter slowdown for the Federal Reserve to increase interest rates in September. Fed officials are among those who believe the setback in growth will be temporary, helping explain why they are considering raising rates this year.

Fed Bank of St. Louis President James Bullard warned Thursday that keeping rates near zero risks inflating asset-price bubbles, saying officials should raise borrowing costs this year as the economy improves.

The Chicago Board Options Exchange Volatility Index climbed 4 percent to 13.84. The gauge, known as the VIX, posted its biggest weekly gain since March.

All of the S&P 500’s 10 main groups declined, with industrial and financial companies down the most. Railroads Kansas City Southern, Norfolk Southern Corp. and CSX Corp. paced a drop among transportation companies for a second day, losing at least 1.8 percent. The Dow Jones Transportation Average fell 0.8 percent, posting its worst month since January.

Capital Goods

Capital goods companies slumped 1.2 percent, the most of 24 industry group in the S&P 500, after the weaker-than-forecast Chicago manufacturing reading. Engine maker Cummins Inc. and truck maker Paccar Inc. retreated more than 2.4 percent. Industrial suppliers Precision Castparts Corp. and Fastenal Co. sank at least 1.9 percent, while Boeing Co. decreased 1.3 percent to a four-month low.

Industrial and construction equipment renter United Rentals Inc. tumbled 6.4 percent, after losing 9.1 percent Thursday, for its worst two-day drop in three years. Bank of America Merrill Lynch analyst Ross Gilardi cut the shares to underperform, citing lower oil prices and a slowing U.S. economy.

Banks also retreated for a second session, as Fifth Third Bancorp. and U.S. Bancorp lost more than 1.3 percent. Financial companies in the benchmark index finished May up 1.6 percent, their best performance since February.

Consumer companies Cablevision Systems Corp., Macy’s Inc. and Chipotle Mexican Grill Inc. lost at least 1.6 percent as consumer confidence fell to six-month low. Procter & Gamble Co., the world’s largest consumer-products maker, fell 1.2 percent to its lowest in 10 months.

Chipmakers, Health-Care

Humana soared 20 percent, its biggest jump ever, after a report that the company hired Goldman Sachs to help pursue a sale. Humana’s rally helped lift the health-care group to a 4.3 percent climb this month, the most since October and the best among the S&P 500’s 10 main groups.

Energy companies in the index were little changed Friday while oil prices gained. The group closed with a 5.2 percent monthly drop, the worst since November. QEP Resources Inc. and Pioneer Natural Resources Co. tumbled more than 14 percent in May.

Semiconductor shares advanced for the third day amid more deal activity. Altera added 4 percent after reports the chipmaker is near a deal to be bought by Intel. Avago Technologies Ltd. gained 4 percent, closing the week up 12 percent after its $37 billion buyout of Broadcom Corp. was announced yesterday.

Mergers involving chipmakers in the benchmark index helped boost the group 8.1 percent in May, their best month since November.

GameStop Corp. rallied 6.1 percent to a six-month high, after first-quarter results beat analysts’ estimates and the largest U.S. video-game specialty retailer raised its full-year outlook.

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