S&P 500 Little Changed for Second Day Amid Stronger Factory Data

  • Manufacturing gauge accelerates more than forecast in May
  • Traders still rein in wagers on higher rates this summer

Clarida: World Appears Stable But Is Not Very Secure

U.S. stocks were little changed, as stronger American factory data contrasted evidence of sluggish global growth while investors braced for the possibility of higher interest rates by this summer.

Equities rebounded from an early selloff after a report showed manufacturing expanded at a faster pace in May. Gains in health-care and consumer staples shares were offset by losses among phone, technology and consumer discretionary companies. The benchmark index held in an area where stocks have had difficulty adding to previous rallies, and failed to maintain a climb above 2,100 for a second straight day.

The S&P 500 rose 0.1 percent to 2,099.33 at 4 p.m. in New York, after erasing a 0.6 percent drop. The Dow Jones Industrial Average added 2.47 points to 17,789.67. The Nasdaq Composite Index increased 0.1 percent, advancing for a sixth day, the longest rally since February 2015 with the technology-heavy gauge gaining 3.9 percent during the span. About 6.5 billion shares traded hands on U.S. exchanges, 10 percent below the three-month average.

The manufacturing data “basically proves that we’re not in a contraction, but we’re continuing to move sideways in a very low growth environment,” James Abate, who helps oversee $1 billion as chief investment officer at Centre Funds in New York, said by phone. “Industrial production numbers have been negative for quite some period of time, and these numbers abate very near-term concerns about an outright recession.”

A report today showed the Institute for Supply Management’s manufacturing index climbed more than economists forecast in May, helped by an increase in orders that signals U.S. factories are rebounding from an early 2016 slump. Manufacturers also are seeing a pickup in price pressures, with the index of prices paid jumping to the highest level since June 2011.

For more on the ISM manufacturing data, click here.

Readings on manufacturing in China and the euro area showed tepid expansion, reminding investors of the risk that overseas weakness could spread to the U.S. economy. Meanwhile, the Organisation for Economic Cooperation and Development cut its forecasts for growth this year in the U.S. and Japan, while warning the global economy is slipping into a self-fulfilling “low-growth trap” where ultra-loose monetary policy risks doing more harm than good.

The S&P 500 climbed 1.5 percent in May as speculation grew the world’s biggest economy can withstand a Federal Reserve rate increase this summer, and as Apple Inc. lifted technology shares. The climb rejuvenated a rally that had lost momentum after surging 15 percent from a 22-month low in February. The index closed today within 0.2 percent of a four-month high reached in April and is 1.5 percent from a record set a year ago.

Following the ISM manufacturing gauge, investors look forward to payrolls data due Friday for further clues on prospects for borrowing costs. Fed Chair Janet Yellen said last week an improving economy would probably warrant another rate increase in the coming months, while her colleagues have indicated willingness to act.

In its Beige Book assessment of regional economic conditions today, the bank said the economy expanded at a modest pace across most of the country since mid-April, causing the labor market to tighten as employers continued adding jobs and nudging wages higher. Its next rate decision is set for June 15.

Traders have reined in expectations for higher borrowing costs so far this week. They now price in a 52 percent chance of a rate increase by July. The probability of a June boost is 20 percent, down from 34 percent a week ago.

“Throughout the day, people are starting to think about some of the details behind the manufacturing numbers and looking forward to what’s coming in the next few days with ADP and unemployment,” said Bryce Doty, senior portfolio manager at Sit Investment Associates which oversees $14 billion. “The market is struggling with how to absorb that.”

In Wednesday’s trading, seven of the S&P 500’s 10 main industries advanced, led by gains in consumer staples shares, health-care and utilities. Phone, technology and consumer discretionary companies were the biggest drags on the index. A Goldman Sachs Group Inc. basket of most shorted shares rose for the seventh time in eight days, climbing 6.7 percent during that period while the S&P 500 added 2.9 percent.

The CBOE Volatility Index increased 0.1 percent to 14.20. The measure of market turbulence known as the VIX fell 9.6 percent in May.

Automakers Drop

General Motors Co. dropped 3.4 percent, the most since Jan. 7, and Ford Motor Co. lost 2.8 percent to weigh most on the consumer discretionary group. U.S. auto sales were softer than forecast in May, showing consumer demand for cars is leveling off faster than industry executives predicted. Parts maker BorgWarner Inc. sank 1.4 percent.

AT&T Inc. declined 1.1 percent, its worst in two weeks, to snap a five-day rally. Verizon Communications Inc. slid 0.9 percent, also halting five days of gains, its longest winning streak in more than two months.

Energy producers shook off declines, advancing 0.2 percent after crude erased losses as OPEC ministers arrive in Vienna for talks on production. Apache Corp. and Hess Corp. fell more than 1.6 percent, with those declines offset by gains of at least 1.9 percent in Valero Energy Corp. and Marathon Petroleum Corp.

Health-care shares extended a rally to a sixth session, the longest since last July, led by gains in biotechnology companies. Endo International Plc and Mylan NV added more than 2.5 percent. Allergan Plc increased 2.8 percent, a day after Carl Icahn said he’s taken a “large position” in the company. Allergan also said regulators approved one of its products for use in lip augmentation and facial wrinkles.

Consumer Staples

The consumer staples group advanced to a two-week high, led today by a 4.9 percent jump in Whole Foods Market Inc. Credit Suisse Group AG upgraded the supermarket chain to the equivalent of buy from hold, saying the current share price is attractive. Costco Wholesale Corp. rose 2.5 percent after Goldman Sachs Group Inc. raised its rating on the shares to buy from neutral. The stock reached an eight-month low two weeks ago.

Among shares moving on corporate news, Under Armour Inc. fell 3.9 percent to a four-month low after cutting its outlook, citing the demise of one of its largest customers, the Sports Authority Inc.

Equity Residential tumbled 4.1 percent to the lowest since October 2014. The apartment owner said new leases in New York and San Francisco are falling short of revenue expectations.

Michael Kors Holdings Ltd. rallied 6.6 percent, the most in nearly four months, as its forecast exceeded analysts’ estimates, helped by a new lineup of handbags and the prospect of a deeper push into Asia.

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