U.S. Stocks Rise as Internet, Small-Cap Selloff Reverses

U.S. stocks rose, with the Standard & Poor’s 500 Index erasing an earlier slide as a selloff in Internet and smaller companies abated amid optimism over deal activity. Treasuries declined for the first time in a week before Federal Reserve policy makers meet tomorrow.

The S&P 500 ended the day up 0.3 percent, after dropping as much as 0.7 percent. The Nasdaq 100 Index erased a decline of 1.2 percent as the Russell 2000 Index of small companies pared its slide by more than half. Pfizer Inc. rallied 4 percent after confirming it had made a bid for AstraZeneca Plc, Britain’s second-biggest pharmaceutical company. Ten-year Treasury yields rose four basis points to 2.70 percent by 5 p.m. in New York. Oil reversed losses while gold retreated.

U.S. equities rallied early in the session as large companies climbed on optimism over the outlook for merger activity. Pfizer proposed buying AstraZeneca for about 58.8 billion pounds ($98.7 billion), while General Electric Co.’s bid for France’s Alstom SA gained steam. Stocks turned lower as the U.S. and European Union imposed new sanctions on Russia, while selling in Internet and small-cap stocks spread to the broader market. Major indexes recovered in the afternoon, turning positive during the final hour of trading.

“It’s remarkable how volatile the market can be on an intraday basis,” John Carey, a Boston-based fund manager at Pioneer Investment Management Inc., which oversees $220 billion worldwide, said by phone. “Most of the companies that have reported so far have exceeded expectations and there’s M&A that’s bubbling along and that could be causing some optimism, with big deals and restructuring.”

Apple Rally

The S&P 500’s fluctuations today took the gauge as much as 0.7 percent higher before it retreated in the early afternoon.

Increases among larger stocks helped push technology companies in the index higher as a group. Microsoft Corp. rose 2.4 percent as International Business Machines Corp. added 1.9 percent and Apple Inc. climbed 3.9 percent to extend its three-day rally to 13 percent, the most since 2009.

Bank of America Corp. dropped 6.3 percent, the most since 2012, after announcing it will suspend planned buybacks and a dividend increase because of an error in the lender’s capital planning. Bank stocks fell the most among 24 S&P 500 groups.

The Nasdaq Composite Index reversed a 1.5 percent slide today to finish little changed after falling the most in two weeks April 25. The technology-heavy gauge has dropped in four of the past five weeks amid concern valuations have outpaced estimates for earnings growth. Nasdaq companies trade at 34 times reported earnings, about double the level of S&P 500 members.

Herbalife Earnings

Herbalife Ltd., the nutrition company facing probes by U.S. regulators and law enforcement, climbed more than 1 percent in extended trading as it reported first-quarter profit after the markets closed hat topped analysts’ estimates. the company also raised its forecast as sales gained in North America and halted its dividend to buy back more stock.

About 74 percent of the 249 S&P members that have reported earnings so far this season have posted profit that exceeded analysts estimates, with 53 percent recording sales above projections, data compiled by Bloomberg show. Analysts are predicting a profit-per-share increase of 0.7 percent for S&P 500 companies, down from growth of 6.6 percent projected at the start of the year.

The Dow Jones Internet Index sank 1.9 percent for a fourth day of losses. The gauge is down 18 percent from a 13-year high in March. LinkedIn Corp. and Facebook Inc. fell at least 2.7 percent today. Pfizer’s rally pushed the broader Dow Jones Industrial Average up 0.5 percent.

Fed Outlook

“I think the environment is such that it’s risk-on and risk-off and there’s not much in between,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., which oversees $290 billion, said in an interview.

A busy U.S. calendar this week will give investors more clues about the strength of the economy and the pace of the Fed’s stimulus program.

A report today showed pending home sales in the U.S. climbed in March by the most in almost three years, showing residential real estate was starting to stabilize entering the spring selling season.

The government’s initial tally of first-quarter gross domestic product on April 30 may show the slowest growth in a year. Fed policy makers, who on the same day conclude their third meeting of the year, will probably reduce the pace of assets purchases designed to stoke the economy. The government’s April report on jobs is due May 2.

European Movers

Three rounds of monetary stimulus have helped fuel economic growth, sending the S&P 500 surging as much as 180 percent from its 2009 low.

Yields on 10-year Treasuries rose for the first time since April 17 today with Fed policy makers to start their two-day meeting tomorrow.

Health-care stocks gained the most among 19 industry groups in the Stoxx Europe 600 Index, climbing 1.5 percent to the highest level since March 5. The index of European equities rose 0.2 percent today, trimming earlier gains of 0.6 percent.

Bayer AG climbed 3.3 percent after people familiar with the matter said Europe’s biggest pharmaceutical and chemicals conglomerate is exploring a sale of its plastics unit to focus on growing the health business. The company also reported a 12 percent increase in first-quarter profit.

Siemens AG lost 2.5 percent after French officials asked Alstom to consider a rival offer to beat the bid from GE. Alstom shares were suspended for a second day.

M&A Activity

Meda AB fell 7.8 percent after the Swedish pharmaceutical company rejected Mylan Inc.’s second offer. Mylan sank 4.9 percent after a five-day rally.

“In the short-term, the increase in M&A activity that we’ve been seeing helps positive sentiment,” said Markus Wallner, an equity strategist at Commerzbank AG in Frankfurt. “M&A will continue to support the stock market, but at the same time the Ukraine crisis will continue to cause uncertainty. This means we’ll still see volatile daily movements.”

Russia’s Micex Index rose 1.5 percent, after falling as much as 1.5 percent, as OAO Sberbank, the nation’s biggest lender, rallied 5 percent. OAO Rosneft slid 1.7 percent as its chief executive officer was targeted by the sanctions. The equities gauge has lost 10 percent since Putin’s incursion into Crimea at the start of March.

Sanctions List

The list of U.S. sanctions included Igor Sechin, the Rosneft CEO, and Sergei Chemezov, director general of State Corporation for Promoting Development, Manufacturing and Export of Russian Technologies High-Tech Industrial Products, also known as Rostec, and banks including InvestCapitalBank and SMP Bank.

The iShares MSCI Emerging Markets exchange-traded fund rebounded from the lowest level in a month, gaining 0.5 percent in New York on speculation that the sanctions against Russia won’t hurt the economy. The MSCI Emerging Markets Index was little changed.

West Texas Intermediate oil reversed earlier declines of as much as 0.3 percent to end the session up 0.2 percent at $100.84 a barrel on speculation that the sanctions won’t disrupt oil supplies. Russia is the world’s largest energy exporter. The S&P GSCI index of 24 commodities lost 0.5 percent.

Gold fell for the first time in four days, as the U.S. housing data crimped demand for the precious metal as an alternative asset. Futures for June delivery fell 0.1 percent to settle at $1,299 an ounce in New York.

Before it's here, it's on the Bloomberg Terminal.