U.S. Stocks Fall Amid S&P Outlook for America, China Data

U.S. stocks declined, following the biggest two-day gain for the Standard & Poor’s 500 Index since January, as investors weighed S&P’s move to boost its outlook for America and Chinese data missed estimates.

Apple Inc. lost 0.7 percent after introducing a music-streaming service. Homebuilders slumped as bond yields surged and JPMorgan Chase & Co. cut its rating on Lennar Corp. McDonald’s Corp. climbed 1.3 percent on better-than-estimated sales growth in May as the Dollar Menu and breakfast items helped drive the U.S. business. Monsanto Co. jumped 4.5 percent as Argentina said China has agreed to accept imports of the company’s genetically modified Intacta soybeans.

The S&P 500 fell less than 0.1 percent to 1,642.81 at 4 p.m. in New York, after gaining as much as 0.3 percent earlier. The Dow Jones Industrial Average slipped 9.53 points, or 0.1 percent, to 15,238.59. More than 5.5 billion shares traded hands on U.S. exchanges, or 12 percent below the three-month average.

“The S&P upgrading of U.S. debt is certainly good in a sense that it takes the issue off the table,” Derek Sasveld, a New York-based senior portfolio manager for ING Investment Management U.S., which oversees $180 billion, said in a phone interview. “But the market was already aware that government finances were in a better shape, an increasingly better shape.”

U.S. equities rose last week as U.S. companies added more workers to payrolls than economists forecast, signaling the economy continues to expand. The U.S.’s AA+ credit rating outlook was increased today to stable from negative by Standard & Poor’s, which cited receding fiscal risks. S&P, the world’s largest credit rater, cut the U.S. ranking from AAA in August 2011, contributing to a global stock-market rout and sending yields on Treasury bonds to record lows.

Bullard Speech

Fed Bank of St. Louis President James Bullard said inflation below the central bank’s 2 percent target warrants prolonging the “aggressive” use of bond buying to spur growth and bring down unemployment.

While “labor market conditions have improved since last summer,” Bullard said in remarks prepared for a panel discussion in Montreal, “surprisingly low inflation readings may mean the Committee can maintain its aggressive program over a longer time frame.”

Stimulus from the Federal Reserve and better-than-estimated earnings have propelled the bull market in U.S. equities into a fifth year and driven the S&P 500 up 143 percent from a 12-year low in 2009. The index is still 1.6 percent below its record high from May 21, the day before Fed Chairman Ben S. Bernanke suggested the central bank could curtail its $85 billion monthly bond purchases if the economy improved in a “real and sustainable way.”

China Reports

China’s industrial production rose a less-than-forecast 9.2 percent last month, while export gains were at a 10-month low and imports dropped, data over the weekend showed.

Japan’s Topix index surged by the most in two years today as the government said the economy grew more than initially forecast in the first quarter. Gross domestic product in Japan expanded an annualized 4.1 percent, compared with a preliminary calculation of 3.5 percent, the Cabinet Office said.

Reports this week may show U.S. retail sales climbed in May and business inventories increased in April, according to Bloomberg surveys of economists.

The Chicago Board Options Exchange Volatility Index, or VIX, added 2 percent today to 15.44. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a six-year low in March and has since surged 37 percent.

McDonald’s Sales

Five of the 10 S&P 500 industry groups fell as consumer-discretionary and industrial stocks slumped the most, losing at least 0.3 percent. Telephone and raw-material companies had the largest gains.

Apple slid 0.7 percent to $438.89, erasing a gain of as much as 1.7 percent, after unveiling a music-streaming service called iTunes Radio at the company’s annual developers conference in San Francisco. Pandora Media Inc., which offers online-radio service, soared 2.5 percent to $15.49.

Chief Executive Officer Tim Cook also introduced a new version of Apple’s Mac operating system called Mavericks that’s aimed at delivering tighter integration with iPhones and iPads.

An S&P index of homebuilders slumped 2.3 percent as all its 11 members retreated. Yields on 30-year bond climbed to the highest in more than a year, spurring concern rising interest rates will hurt demand in the housing market.

Growth Potential

Lennar lost 3.3 percent to $37.31 after being cut to neutral from overweight by JPMorgan. The homebuilder’s stock, trading at a 16 percent premium to peers based on a price-to-earnings ratio, already reflected the company’s growth potential, analyst Michael Rehaut wrote in a note to clients.

D.R. Horton Inc. dropped 2.1 percent to $23.06. PulteGroup Inc. slipped 2 percent to $20.64.

Dynavax Technologies Corp., a drugmaker seeking to bring its first product to market, plunged 43 percent to $1.40, its lowest level since 2010. U.S. regulators asked for a wider study to assess the safety of the company’s hepatitis B vaccine.

Lululemon Athletica Inc. slumped 11 percent to $73.05 in after-hours trading as of 4:55 New York time. The yoga-wear retailer that recently recalled one of its most popular styles of pants said Chief Executive Officer Christine Day will step down once a replacement is found. The board has formed a search committee, and the decision is being announced now so it can have a “healthy transition period,” Vancouver-based Lululemon said today in a statement after the market closed.

McDonald’s Sales

McDonald’s increased 1.3 percent to $99.53 during regular trading. The largest restaurant chain said sales at stores open at least 13 months rose 2.6 percent last month. Analysts projected a 1.9 percent increase, the average of estimates compiled by Consensus Metrix.

Monsanto, the world’s largest seed company, rallied 4.5 percent to $106.25. China approved imports of Intacta soybeans and three other engineered crops, Norberto Yahuar, Argentina’s agricultural minister, said in a June 8 statement. Intacta may add $1.30 a share to Monsanto earnings by 2017 as sales begin in Brazil next year and Argentina the following year, said Cooley May, an analyst at Macquarie Group Ltd. who upgraded the shares to outperform, an equivalent of buy, from hold in a note today.

Facebook Inc. gained 4.5 percent to $24.33 amid speculation that the world’s largest social network may be added to the S&P 500. With a current market value of almost $60 billion, Facebook is likely to join the S&P 500 in the next year, according to Jordan Rohan, an analyst at Stifel Nicolaus & Co. He raised Facebook’s stock rating to buy from hold.

Discount Brokers

Shares of discount brokers are gaining the most since 2003 compared with the S&P 500, a sign that small investors are joining the four-year bull market even after U.S. stocks suffered their biggest losses in six months.

Charles Schwab Corp., TD Ameritrade Holding Corp. and E*Trade Financial Corp. have climbed 38 percent on average in 2013, beating the S&P 500 by 23 percentage points and eclipsing returns in financial shares from Goldman Sachs Group Inc. to Bank of America Corp., according to data compiled by Bloomberg. The last times that happened, equity mutual funds received about $91 billion, 24 percent more than the annual average in the two decades before the financial crisis, the data show.

“It says something about an improvement of confidence among our biggest sector of the economy, retail investors and households,” James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees more than $340 billion, said in a phone interview. “When the retail investor finally gets more confident about the future, flows follow.”

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