In the U.S.: U.S. Stock Futures Little Changed Before ISM Factory Data

4 September 2012

“People…trying to get their minds wrapped around the market again.” Tell me about it!

U.S. stock futures were little changed, following a two-week decline in the Standard & Poor’s 500 Index, before a report on American manufacturing and as European leaders prepared for talks to address the debt crisis.

Morgan Stanley (MS) rose 2.1 percent after CLSA Ltd. recommended buying the shares.Valeant Pharmaceuticals International Inc. (VRX) rallied 10 percent after agreeing to buy Medicis (MRX) Pharmaceutical Corp. for $2.6 billion. Medicis surged 38 percent. Peabody Energy Corp. (BTU) lost 1.8 percent as Dahlman Rose & Co. cut its recommendation. Smithfield Foods Inc. (SFD), the largest U.S. pork processor, declined 2.8 percent on disappointing results.

S&P 500 futures expiring in September declined 0.1 percent to 1,404 at 8:27 a.m. New York time. Dow Jones Industrial Average futures advanced 8 points, or 0.1 percent, to 13,087 today. The U.S. market was closed yesterday for a holiday. The number of shares changing hands in Stoxx Europe 600 Index’s companies was 9.4 percent lower than the 30-day average at this time of day, according to data compiled by Bloomberg.

“People are coming back from a long weekend and trying to get their minds wrapped around the market again,” said Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York. “The latest economic numbers have shown a bit of a pick-up. Yet it’s nothing to shout about. We continue in this slow growth area.”

Equities were little changed before a report that may show manufacturing stagnated. European leaders are meeting in Rome and Berlin today, two days before the European Central Bankholds its policy meeting. ECB President Mario Draghi is due to distribute his bond-purchasing plan to national banks after he was said to tell officials he would be comfortable buying three- year government bonds to lower borrowing costs.

Monthly Gain

The S&P 500 rose 2 percent in August, capping its longest monthly rally since March, amid expectations global central banks would act to stimulate the economy. Federal Reserve Chairman Ben S. Bernanke said on Aug. 31 at an annual forum in Jackson Hole, Wyoming, that he wouldn’t rule out steps to lower a jobless rate he described as a “grave concern.”

Morgan Stanley added 2.1 percent to $15.32 after being raised to buy from outperform at CLSA by equity analyst Michael Mayo. The 12-month share-price estimate is $23.

Valeant rallied 10 percent to $56.50, while Medicis gained 38 percent to $43.47. Canada’s largest publicly traded drugmaker said yesterday it will pay $44 in cash for each share of Scottsdale, Arizona-based Medicis, 39 percent more than the Aug. 31 closing price. The transaction, which will expand a lineup of wrinkle treatments and skin-care products, will close in the first half of 2013, Montreal-based Valeant said.

Peabody Energy

Peabody Energy dropped 1.8 percent to $21.24. The company was cut to hold from buy at Dahlman Rose, which also lowered its outlook for metallurgical coal used in steelmaking.

Smithfield Foods decreased 2.8 percent to $18.78 after reporting first-quarter earningsexcluding some items of 40 cents a share. On average, analysts surveyed by Bloomberg projected profit of 45 cents.

Profits are moving U.S. equity prices more than any time since the bull market began 3 1/2 years ago, rewarding investors for picking stocks based on company data instead of following the herd rocked by Europe’s crisis and the slowing U.S. economy.

Companies in the S&P 500 rose or fell an average of 4.4 percent the day after releasing results since July, according to data compiled by Bloomberg. The last time they moved more was in the second quarter of 2009. Daily swings in the benchmark gauge narrowed to 0.4 percent last month from 2.2 percent a year ago, as economic and policy changes battered investors. More than 475 S&P 500 stocks moved in the same direction in six of the first nine days of August 2011, with all 500 down on Aug. 8.

Bulls vs. Bears

Bulls say lockstep moves are diminishing because investors are changing their behavior, making choices based on corporate results at a time when analysts estimate profits (SPX) for companies in the S&P 500 will rise almost 10 percent a year through 2014. Bears say the focus on earnings won’t bring back individuals who have drained more than $420 billion from U.S. equity mutual funds over the past four years even as stocks rallied 108 percent since March 2009 and net income was unchanged in the second quarter.

“I’m not saying it’s an easy job to be a stock picker in this environment, but it’s certainly easier,” Sandy Lincoln, the Chicago-based chief market strategist with BMO Global Asset Management, which oversees about $100 billion, said in an Aug. 28 interview. “Stock selection does have the opportunity here to finally show a face with a smile.”


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