U.S. Stocks Halt Two-Day Slide Amid Retail Sales Data

U.S. stocks rose, with the Standard & Poor’s 500 Index trimming morning losses for a ninth consecutive day, as data on retail sales reinforced signals the economy is expanding moderately.

Apple Inc. rallied 4.8 percent after billionaire investor Carl Icahn disclosed a “large position” in the stock. Bank of America Corp. and Citigroup Inc. jumped more than 0.6 percent after analyst Dick Bove said the shares would double. PulteGroup Inc. dropped 2.3 percent as homebuilders slid amid rising interest rates. U.S. Airways Group Inc. sank 13 percent after the Justice Department recommended blocking a planned merger with American Airlines.

The S&P 500 rose 0.3 percent to 1,694.16 at 4 p.m. in New York. The Dow Jones Industrial Average added 31.33 points, or 0.2 percent, to 15,451.01. About 5.6 billion shares changed hands on U.S. exchanges, 12 percent below the three-month average.

“The general tenor of economic news has been somewhat positive and so perhaps there are some bargain hunters who are coming into the market after some days of correction,” John Carey, a fund manager at Boston-based Pioneer Investment Management Inc., said by phone. His firm oversees $211.5 billion. “I don’t know that we’re going to have a roaring recovery anytime soon, but the economy does seem to be advancing, slowly but certainly advancing, and that I think has sunk in finally.”

Retail Data

The S&P 500 erased earlier losses of as much as 0.4 percent, extending to a ninth day the trend where it reached its lowest point before noon, data compiled by Bloomberg show. The gauge has rallied an average of 0.45 percent from its morning low to the close during the eight days through yesterday.

Data today showed retail sales rose 0.2 percent in July, following a 0.6 percent gain in June that was larger than previously reported, according to Commerce Department figures. The median forecast of 81 economists surveyed by Bloomberg called for a 0.3 percent advance.

The S&P 500 fell 1.2 percent through yesterday after closing at a record on Aug. 2, amid growing speculation the Federal Reserve will pare bond purchases this year as the economy strengthens. Fed officials have been scrutinizing data to determine whether growth is strong enough to curtail stimulus.

Last week Charles Evans, Sandra Pianalto and Richard Fisher, regional Fed presidents in Chicago, Cleveland and Dallas, said the central bank may be closer to tapering as the labor market recovers. Fed stimulus has helped propel the S&P 500 up more than 150 percent from its bear-market low in 2009.

Tapering Consensus

Fed Bank of Atlanta President Dennis Lockhart, who has backed the central bank’s monthly bond purchases, said today policy makers may start to slow buying at any of their next few meetings amid “uneven performance” by the economy.

“The consensus is you’re going to see tapering in September and I don’t think anything we’ve seen today would change that thought process, whether it’s Lockhart or retail sales,” Gary Flam, a portfolio manager at Bel Air Investment Advisors LLC in Los Angeles, said in a phone interview. His firm oversees $7 billion. “We’re in a holding pattern. It’s fairly quiet and minor headlines can push the market around.”

The Chicago Board Options Exchange Volatility Index, or VIX, fell 3.9 percent to 12.31 today. The equity volatility gauge reached its highest level this year in June and has since dropped 40 percent.

Icahn Stake

Seven of 10 S&P 500 main industries rose as technology and financial shares climbed more than 0.4 percent to lead the gain.

Apple jumped 4.8 percent to $489.57, the highest since Jan. 23. Icahn said in a post on Twitter Inc. that Apple shares are extremely undervalued and the company should conduct a large buyback.

The company will unveil a new iPhone at a Sept. 10 event, according to a person familiar with its plans. New iPads, including one with a thinner body and a mini version with a high-resolution screen will go on sale later, two people said.

Financial shares added 0.4 percent as a group, ending two days of declines. Bank of America climbed 0.7 percent to $14.51 and Citigroup rose 1.7 percent to $51.77.

The two banks “will at least get 100 percent higher than they are now,” Bove, an analyst with Rafferty Capital Markets LLC, said in an interview on CNBC. “Now that’s not going to happen in the next 12 months; it may not happen in the next 18 months, but it’s going to happen.” He also said the U.S. banking industry is on pace for record profits in 2013.

Earnings Scorecard

Better-than-estimated corporate earnings have also helped U.S. equities rally in 2013. Of the 450 companies in the benchmark index that have reported quarterly results this period, 72 percent have exceeded analysts’ profit estimates, data compiled by Bloomberg show.

Hewlett-Packard Co. rose 2.1 percent, the most in the Dow, to $27.30. The largest personal computer maker may report quarterly earnings that beat expectations when announcing results on Aug. 21, according to Jim Suva, an analyst with Citigroup. The stock was added to the firm’s focus list.

Xerox Corp. rose 3.4 percent to $10.49. The printer and copier maker pioneer was raised to buy from neutral at Citigroup on expectation that the company will benefit from the Obama health-care law in 2014.

Eli Lilly & Co. gained 1.7 percent to $54.96. The pharmaceutical company said a study found a drug it is developing is tied to increased survival of patients with a type of lung cancer. Lilly expects to submit applications for necitumumab to regulators before the end of 2014.

Homebuilder Rout

Marvell Technology Group Ltd. climbed 5.3 percent to $13.38. RBC Capital Markets raised its recommendation on the maker of chips for smartphones and computers to top pick from outperform.

An S&P gauge of homebuilder stocks sank 2.4 percent to the lowest level since November as benchmark 10-year yields climbed to the highest since July 5, spurring concern rising interest rates will hinder a housing recovery. All the index’s 11 members declined. PulteGroup slid 2.3 percent to $15.37. D.R. Horton Inc. fell 1.5 percent to $18.54 for a seventh day of losses.

Companies that offer the most in dividends slumped on concern rising bond yields will reduce demand for equity income. Telephone stocks, whose 4.8 percent dividend yield is the highest among 10 industries, slid 0.7 percent. Utilities, ranked the second highest with a 4 percent yield, fell 0.6 percent.

Airlines Index

The Bloomberg U.S. Airlines index tumbled 5.7 percent, the most since April, while the Dow Jones Transportation Average slipped 0.7 percent.

US Airways plunged 13 percent to $16.36. American Airlines’ merger with the company should be blocked, the U.S. Justice Department said in a lawsuit filed today. The move will upend American’s plans to exit bankruptcy through a deal that would create the world’s biggest airline.

Yum Brands Inc. lost 2 percent to $72.97. The owner of the KFC and Pizza Hut chains said same-store sales in China declined 13 percent last month because people remained reluctant to eat chicken following an outbreak of avian flu.

Orbitz Worldwide Inc. fell 13 percent to $10.20. The Internet travel services provider said PAR Capital Management has sold 8.1 million Orbitz shares, or 33 percent of its holding. PAR aims to “better diversify its portfolio,” Paul Reeder, President of PAR Capital Management, said.

Penney Feud

J.C. Penney Co. slipped 3.7 percent to $12.68. Bill Ackman resigned from the retailer’s board after a public fight with his fellow directors, capping more than two years of agitating to remake the company that left him with $700 million in potential losses on his stake in the department-store chain.

The S&P 500 will climb 8 percent to 1,825 in the next 12 months as economic growth gains momentum, according to Goldman Sachs Group Inc. David Kostin, the bank’s chief U.S. equity strategist, recommends buying shares of companies that generate most of their revenue domestically.

“The real issue to focus on is that rising interest rates are a reflection of a better economy,” Kostin said in a Bloomberg Television interview from New York. “The best strategy right now would be here, in the U.S., from now until the end of the year.”

U.S. equity strategists were too cautious on the rally at the beginning of the year, spurring forecasters from Goldman Sachs to Bank of America Corp. and Credit Suisse Group AG to boost year-end targets as the S&P 500 surged to highs. Current predictions indicate the index will retreat about 1 percent to 1,677 by December, the average from a survey of 17 strategists compiled by Bloomberg.

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