S&P 500 Little Changed Amid Quarterly Rally as Home Sales Climb

Jun 30, 2014 4:40 pm ET

June 30 (Bloomberg) --The Standard & Poor’s 500 Index was little changed, capping the longest string of quarterly gains since 1998, as a jump in pending home sales offset weaker-than- forecast manufacturing data.

D.R. Horton Inc. rallied 3.2 percent, leading gains among homebuilders. Yahoo! Inc. rose 2.6 percent after Piper Jaffray Cos. recommended buying the stock. MannKind Corp. jumped 9.6 percent as the maker of diabetes drugs rebounded from its worst week in two months. Allergan Inc. declined 2.7 percent following regulatory decisions on its drugs.

The S&P 500 fell less than 0.1 percent to 1,960.23 at 4 p.m. in New York. The equity benchmark gauge rose 4.7 percent for the quarter, a sixth consecutive advance. The Dow Jones Industrial Average lost 25.24 points, or 0.2 percent, to 16,826.60 today, trimming its quarterly advance to 2.2 percent. The Nasdaq Composite Index rose 0.2 percent, giving it a 5 percent increase for the three months.

“Markets are no longer obviously cheap by any stretch, or expensive for that matter,” Jim Kee, president and chief economist of San Antonio-based South Texas Money Management, said by phone. His firm oversees about $2.4 billion. “Stocks are still the only game in the town. Pullbacks possibly, but ultimately stocks will keep grinding higher.”

The S&P 500 trades at 16.6 times the projected earnings of its members, near its highest valuation in four years. The index has failed to post a gain or loss exceeding 1 percent for 51 straight days, the longest stretch since 1995. More than 5.7 billion shares changed hands on U.S. exchanges today, 4.7 percent below the three-month average.

Breeding Ground

The Chicago Board Options Exchange Volatility Index added 2.8 percent to 11.57. The gauge, known as the VIX, is near its lowest level since February 2007.

“We do have positive outlook for growth, we’re excited about earnings coming in, but it does make us nervous, the lack of volatility and the lack of activity,” Anna Rathbun, director of research for CBIZ Inc.’s retirement plan services unit in Cleveland, Ohio, said in a phone interview. The firm manages about $9 billion. “The low interest rates environment is a good breeding ground for asset bubbles. It feels like the calm before the storm.”

The S&P 500 and the Dow advanced earlier as data showed the number of contracts to purchase previously owned U.S. homes jumped 6.1 percent in May, the most in more than four years, a sign the residential-real estate market is rebounding after a slow start to the year.

An S&P index of homebuilders rose 1.1 percent as 10 of its 11 members gained. D.R. Horton advanced 3.2 percent to $24.58 and Lennar Corp. climbed 0.9 percent to $41.98.

Jobs Report

The Institute for Supply Management-Chicago Inc.’s business barometer fell to 62.6 in June from 65.5 the prior month. The median forecast of 45 economists in a Bloomberg survey projected the index would fall to 63.

Other reports this week will give further clues to the strength of the U.S. economy. Tomorrow brings data on manufacturing and auto sales, with the government’s payrolls report due on July 3 before the holiday weekend.

U.S. equities have reached all-time highs as data from employment to housing fueled confidence that the U.S. economy is rebounding after the worst contraction in gross domestic product since 2009. Fed Chair Janet Yellen said on June 18 that accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth.

The central bank has kept interest rates near zero since 2008 to spur economic growth. Low borrowing costs have fueled record corporate debt issuances and helped drive the S&P 500 up 190 percent from a bear-market bottom in 2009.

Earnings Season

Investors will get a chance to assess the economy when companies start releasing financial results in July. Earnings for S&P 500 companies probably grew 5.2 percent during the second quarter while sales rose 3.2 percent, analyst estimates compiled by Bloomberg show. The forecasts are lower than they were at the beginning of April, when analysts projected earnings to rise 7.3 percent and sales to increase 3.7 percent.

“We’ve come a long way,” said Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, by phone. “Now, it’s an issue of prove to me that the market can keep getting higher based on continued earnings growth and growth in the economy.”

The S&P 500 is up 6.1 percent for the year while the Dow has gained 1.5 percent. The Russell 2000 Index of small companies gained 5.2 percent for June, its biggest monthly advance since September, as the market rebounded from a two- month selloff in Internet and small-cap stocks.

Industry Returns

Utility, materials and technology shares added more than 0.2 percent today for the best returns in the S&P 500. Health- care and industrial shares fell 0.4 percent each for the biggest losses.

Yahoo added 2.6 percent to $35.13. Piper Jaffray raised its rating on the search-engine company to overweight, similar to a buy recommendation, from neutral, saying its 23 percent stake in Alibaba Group Holding Ltd. is undervalued. Analysts estimate the Chinese e-commerce company, which plans an initial public offering in New York, has a value of about $168 billion.

The Philadelphia Semiconductor Index climbed 1.1 percent. Micron Technology Inc. advanced 4.6 percent to $32.95 for the biggest increase in the S&P 500 after Credit Suisse Group AG added the company to the firm’s top investment ideas.

NetApp Inc. jumped 2.9 percent to $36.52. The data-storage company looks “dirt cheap” with 14 percent free cash flow yield, Barron’s reported, citing Brian White, an analyst with Cantor Fitzgerald LP.

Asset Acquisition

PPG Industries Inc. increased 3 percent to $210.15 after agreeing to buy Consorcio Comex SA for about $2.3 billion, picking off the Mexican coatings and paint company that competitor Sherwin-Williams Co. failed to buy. Sherwin’s attempt to buy the Mexican portion of the company was blocked by local antitrust regulators.

Bank of New York Mellon Corp. rose 3.5 percent to $37.48. Trian Fund Management LP, the activist investment firm co- founded by Nelson Peltz, is seeking talks with Bank of New York after revealing a 2.5 percent stake in the world’s largest custody bank.

MannKind jumped 9.6 percent to $10.96. U.S. regulators approved its inhaled insulin with a label warning that the product shouldn’t be used by those with asthma or a serious lung disease. The stock fell as much as 23 percent on June 27, before paring losses in the final hour of trading.

Drug Rejection

Allergan, the drugmaker resisting a takeover by Valeant Pharmaceuticals International Inc., slipped 2.7 percent to $169.22. The Food and Drug Administration rejected Semprana, formerly known as Levadex, an inhalable treatment for migraines, because of problems with the drug’s delivery device. The agency approved Allergan’s Ozurdex, a treatment of vision loss in diabetics.

PetSmart Inc. slipped 1.9 percent to $59.80. The pet-store chain’s sales slowdown will continue this year, hurt by competition, according to Investment Technology Group.

General Motors Co. fell 0.9 percent to $36.30. The company, which has already called back more than 20 million cars in North America for various fixes this year, recalled 8.45 million more today for defects including ignitions and electrical malfunctions.

--With assistance from Sofia Horta e Costa in London.