U.S. Stocks Advance as Small-Cap, Internet Shares Extend Rally

May 19, 2014 4:46 pm ET

May 19 (Bloomberg) -- U.S. stocks rose during one of the slowest trading days of the year as Internet and small-cap shares extended a rebound from losses last week.

Pandora Media Inc., TripAdvisor Inc. and Netflix Inc. increased more than 4.2 percent to lead gains in Internet stocks. Pfizer Inc. rose 0.6 percent after AstraZeneca Plc rejected the drugmaker’s $117 billion offer. AT&T Inc. dropped 1 percent after agreeing to buy DirecTV, the largest U.S. satellite-TV company, for $48.5 billion. Campbell Soup Co. lost 2.4 percent after lowering its sales forecast for the year.

The S&P 500 gained 0.4 percent to 1,885.08 at 4 p.m. in New York, following the first back-to-back weekly losses since January. The Dow Jones Industrial Average increased 20.55 points, or 0.1 percent, to 16,511.86. The Russell 2000 Index jumped 1 percent, and the Nasdaq 100 Index climbed to the highest level since April 3. About 4.9 billion shares changed hands on U.S. exchanges, the second-lowest level of the year.

“It’s going to be a slow week, and a lack of negative news could be moving things higher until we get a directional push,” Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said in a phone interview. “We’re back to the riskier, more volatile assets leading the way.”

The S&P 500 retreated less than 0.1 percent last week amid reports that showed consumer confidence fell in May from a nine- month high, while industrial production unexpectedly declined last month. The benchmark index reached an all-time high of 1,897.45 on May 13 before a selloff in small-cap stocks spread to the broader market.

Internet Stocks

The Russell 2000 Index of small-cap stocks fell 3.3 percent over three days last week before rebounding 0.6 percent on May 16. The gauge is 7.8 percent below its record from March.

The Dow Jones Internet Composite Index jumped 1.5 percent, adding to a 0.5 percent advance in the previous session. The gauge has trimmed its loss for the year to 8.2 percent. Pandora Media added 5.3 percent to $24.66, TripAdvisor rallied 5.2 percent to $86.41 and Netflix increased 4.2 percent to $364.50 today.

The S&P 500 is trading at 17.3 times reported earnings, near the highest level since 2010. Of the 467 S&P 500-listed companies that have released results this season, 76 percent have beaten estimates for profit, while 53 percent have exceeded projections for revenue.

Federal Reserve Chair Janet Yellen said last week the U.S. economy has further to go to achieve full health and predicted small businesses will play a vital role in the recovery.

Fed Minutes

The central bank will release on May 21 minutes from its latest meeting. Policy makers said last month the economy is showing signs of picking up and the job market is improving. The central bank pared its monthly asset-buying and said further reductions in “measured steps” are likely.

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

“We began the year with a market that’s nervous, peaking out to new highs, but still nervous,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., said by phone. Her firm oversees over $1 trillion in assets. “As we near the end of QE, this market is getting more and more normal. Valuations are stabilizing and froth is getting burned off. Growth stocks were part of that froth. Fund managers were thinking ‘take profits now or this summer could be dicey.’”

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, dropped 0.2 percent to 12.42. The measure has lost 9.5 percent this year.

Technology Shares

Seven of the 10 main S&P 500 groups rose today, with technology shares rallying 0.8 percent for the biggest gain. Google Inc. Class A shares and Yahoo Inc., which have dropped more than 3.9 percent for the year, jumped at least 1.4 percent today. Facebook Inc., which is up 8.4 percent in 2014, added 2.1 percent.

Micron Technology Inc. increased 3.5 percent to $26.94. The largest U.S. maker of memory chips was upgraded to outperform from sector perform by RBC Capital Markets, which cited favorable changes in the memory industry amid strong demand cycles.

Pfizer climbed 0.6 percent to $29.28. AstraZeneca rejected Pfizer’s sweetened 69.4 billion-pound ($117 billion) takeover offer, saying the bid fails to reflect the value of the pipeline of experimental medicines. Pfizer said its offer was final and the company will not go to shareholders with a hostile bid.

China Venture

Johnson Controls Inc. surged 4.3 percent to $46.69, its biggest gain since Nov. 21. The largest U.S. auto-parts maker announced a plan to spin off its automotive-interiors business into a joint venture with China’s Yanfeng Automotive Trim Systems Co.

Utility shares had the largest decline among the 10 groups, retreating 1.6 percent, while phone companies lost 0.4 percent.

AT&T slid 1 percent to $36.38. The second-largest U.S. wireless carrier will pay $95 for each share of DirecTV, split between $28.50 in cash and the equivalent of $66.50 in stock, the companies said yesterday. That’s a 10 percent premium to DirecTV’s closing price on May 16. Including net debt, the deal values the largest U.S. satellite-TV company at $67.1 billion.

DirecTV retreated 1.8 percent to $84.65.

Campbell Soup dropped 2.4 percent to $44.06. The packaged foods producer lowered its sales forecast for 2014 after reporting third-quarter sales that missed analysts’ estimates.

--With assistance from Trista Kelley in London.