In the U.S.: Stock Futures Drop as Spain Enters Into Recession

30 April 2012

Stocks set for a poor showing today in light of poor earnings results and Spain

U.S. stock futures declined, following the best week in a month for the Standard & Poor’s 500 Index, as data showing Spain entered into a recession overshadowed an increase in American consumer spending.

Humana Inc. (HUM), the second-biggest provider of U.S.-backed Medicare insurance, retreated 3.8 percent as profit declined. Barnes & Noble Inc. (BKS) soared 93 percent after Microsoft Corp. (MSFT) said it will invest $300 million in a venture with the bookstore chain. Chesapeake Energy Corp. (CHK) added 1.3 percent after the natural gas producer was raised at BMO Capital Markets.

S&P 500 futures expiring in June lost 0.3 percent to 1,395 at 8:38 a.m. New York time. The benchmark index for American equities has fallen 0.4 percent in April and was poised to snap a four-month rally. Dow Jones Industrial Average futures fell 22 points, or 0.2 percent, to 13,142.

Equity futures fell as Spain’s economy contracted in the first quarter, putting the euro region’s fourth-largest economy into its second recession since 2009. Consumer spending in the U.S. climbed in March after the biggest gain since August 2009, and incomes picked up, indicating the biggest part of the economy will help sustain the expansion.

Investors also watched earnings data as about 74 percent of S&P 500 companies that reported results since April 10 have beaten earnings projections by an average of 7 percent, according to data compiled by Bloomberg. Eight of the 10 groups in the index have delivered income that surpassed projections. Earnings will jump 14 percent to $105.12 a share in 2012, analysts’ estimates compiled by Bloomberg show.

Humana Slumps

Humana lost 3.8 percent to $84.50. Net income dropped 21 percent to $248 million, or $1.49 a share, from $315 million, or $1.86, a year earlier. The per-share result missed by 2 cents the $1.51 average of 9 analyst estimates compiled by Bloomberg.

Barnes & Noble soared 93 percent to $26.41. The investment will give Microsoft about 18 percent of the newly formed company, which has yet to be named. The companies will develop a Nook e-reader application for Windows 8 and have also settled their patent litigation.

Chesapeake Energy added 1.3 percent to $17.95. The company was raised to the equivalent of a buy at BMO Capital Markets. The 12-month share-price estimate is $25.

Analysts predict U.S. shares will rise enough this year to boost the S&P 500 to a record, even as Wall Street strategists say the best is already over for American equities.

Individual price forecasts for stocks show the combined projection for the gauge has risen to 1,569.74, according to analyst estimates compiled by Bloomberg. That compares with theOctober 2007 high of 1,565.15. At the same time, strategists who base their predictions on assessments of the economy say this year’s rally represents all the gains investors will see.

Bulls vs. Bears

Bullish forecasts are based on analysts’ expectations that S&P 500 earnings will reach records every year through 2014 as stimulus by the Federal Reserve props up the U.S. economy. Bears say Europe’s debt crisis won’t be contained and economic growth will be insufficient to maintain gains that have restored more than $3 trillion to U.S. equities in six months.

“The financial strength of corporate America is stronger than people believe,” Jeffrey Schwarte, a money manager who helps oversee about $258.2 billion in Des Moines, Iowa, at Principal Global Investors, said in a telephone interview on April 25. “We believe earnings ultimately matter.”


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