In the U.S.: U.S. Stock Futures Drop as Jobs Data Trail Estimates

2 May 2012

Despite expected economic recovery, fixed income continues to be the clear winner as stocks fall prey to ‘hiccups.’

U.S. stock futures retreated, after the Dow Jones Industrial Average advanced to the highest level since December 2007, as an industry report showed employers added fewer jobs than economists forecast last month.

Chesapeake Energy Corp. (CHK) tumbled 8.7 percent after reporting an unexpected loss and saying it may run out of money next year under the weight of the lowest natural-gas prices in a decade. CVS Caremark Corp. (CVS), the largest provider of prescription drugs in the U.S., rose 2 percent as profit beat projections.

Standard & Poor’s 500 Index futures expiring in June slid 0.5 percent to 1,394 at 8:31 a.m. New York time. Dow futures fell 54 points, to 0.4 percent, to 13,164 today.

Equity futures fell as companies in the U.S. added 119,000 workers in April, according to figures from Roseland, New Jersey-based ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for a 170,000 advance. Euro-region unemployment rose to a 15-year high and manufacturing contracted for a ninth month, adding to signs the economic slump is deepening.

Stocks rallied yesterday after an unexpected acceleration in U.S. manufacturing increased optimism about the economy. Investors also watched corporate earnings as 74 percent of S&P 500 companies that reported results since April 10 have beaten projections, according to data compiled by Bloomberg.

Chesapeake tumbled 8.7 percent to $17.90. The company slashed its full-year 2012 and 2013 operating cash flow estimates by as much as 48 percent, and increased the amount of assets it plans to sell. This year’s cash flow estimate was lowered to $2.7 billion to $3 billion, from a February forecast of $4.5 billion to $5.2 billion.

Executive Perk

The shares surged 6.3 percent yesterday amid plans to strip Chief Executive Officer Aubrey McClendon of the chairman’s job and end an executive perk that allowed him to buy personal stakes in every well the company drilled.

CVS rallied 2 percent to $45.62. Chief Executive Officer Larry Merlo increased marketing this year to lure customers from Walgreen Co., boosting demand for prescriptions and general merchandise. Walgreen has lost customers after its contract to sell prescriptions through employee-benefits manager Express Scripts Inc. ended Dec. 31 amid a reimbursement dispute.

Wynn Resorts Ltd. (WYNN) jumped 3.3 percent to $139.10. The casino operator’s Wynn Macau Ltd. unit won a land grant for its second resort in the Chinese city as surging revenue spurs expansion by casinos in the world’s biggest gaming hub.

Herbalife Rebounds

Herbalife Ltd. (HLF) climbed 3.6 percent to $58.30. The seller of nutritional and weight-loss supplements was raised to buy from hold at Auriga USA LLC. The shares tumbled 20 percent yesterday as hedge-fund manager David Einhorn asked executives why it has stopped providing information about distributors in its filings.

Financial companies are sending a signal that U.S. stock investors may be better off without a “sell in May” strategy this year, according to Ari H. Wald, a Brown Brothers Harriman & Co. analyst.

The S&P 500’s financial stocks are beating the benchmark this year after lagging behind in2011. (SPX) The group’s weakness last year preceded five straight months of declines, from May through September, for the S&P 500.

Banks, insurers and other financial companies posted the year’s biggest gain among the S&P 500’s 10 main industry groups through yesterday. Their industry index rose 20 percent, just beating a 19 percent advance in a gauge of technology stocks.

Economic Swings

Another favorable sign is that computer-related companies and other groups sensitive to economic swings are market leaders this year, Wald wrote yesterday in a report. Industries less affected by the economy’s performance were top performers through the first four months of last year.

There are indicators of weakness as well, he wrote. The number of 52-week highs in U.S. stocks after subtracting lows is shrinking, investor concern about a market slump has faded, yields on Treasury debt are low by historical standards, and commodity prices have fallen in the past two months.

The slump in these and other market barometers “has not progressed to the point that they support a bearish outlook as they did in May 2011,” Wald wrote. Instead, they point toward a “lack of full confirmation in either direction,” according to the New York-based analyst.


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