In the U.S.: U.S. Stock-Index Futures Rise as Fed Indicates Low Rates

12 April 2012

Fed’s accomodative stance boosts confidence in spite of increased jobless claims.

U.S. stock futures rose, indicating the Standard & Poor’s 500 Index will advance for a second day, after Federal Reserve Vice Chairman Janet Yellen signaled low borrowing costs to stimulate the world’s largest economy.

Google Inc. (GOOG), owner of the world’s most popular Web search engine, added 0.9 percent ahead of its results. AT&T Inc. (T) climbed 1.1 percent after JPMorgan Chase & Co. raised its recommendation for the largest U.S. phone company. McKesson Corp. (MCK) jumped 4.4 percent after winning drug supply contract valued at as much as $31.6 billion over as many as eight years.

S&P 500 futures expiring in June added 0.4 percent to 1,369.20 at 8:23 a.m. New York time. Dow Jones Industrial Average futures rose 45 points, or 0.4 percent, to 12,789.

Equity futures gained after Fed’s Yellen endorsed the Fed’s view that borrowing costs are likely to stay low through 2014 as the central bank misses its goal for full employment and inflation remains in check. Yellen, speaking two weeks before policy makers next meet, said unemployment will decline “only gradually,” echoing Fed Chairman Ben S. Bernanke’s view.

The trade deficit in the U.S. probably retreated in February as imports cooled from a record, economists said before a report today. Other reports may show wholesale prices climbed at a slower pace and jobless claims were little changed.

Stocks rose yesterday, snapping a five-day drop, after Alcoa Inc. (AA) reported an unexpected first-quarter profit. While S&P 500 per-share profit growth slowed to 0.8 percent during the first three months of the year from 4.9 percent in the fourth quarter, it will accelerate to 8.3 percent during all of 2012, according to analyst estimates compiled by Bloomberg.

Google’s Results

Google, which is scheduled to report first-quarter results after the market close, added 0.9 percent to $641.49. On average, the analysts surveyed by Bloomberg estimate earnings of $9.64, a 19 percent growth from the same period a year earlier.

Shareholders are urging Google to take a page from Apple Inc. and return part of its $44.6 billionin cash to investors. Google has more cash as a percentage of market value than five of its largest peers, including Apple (AAPL), which reinstated a dividend and unveiled a $10 billion stock buyback last month. Google’s cash has almost doubled since 2009, and it is the only U.S. technology company with a market value of more than $125 billion that doesn’t offer a regular shareholder payout.

“There’s a pattern here that makes sense, and I’m sure Google will figure out the right thing to do,” said Michael Holland, chairman of Holland & Co., a New York investment firm that oversees more than $4 billion in assets, including Google shares. “It’s a little bit of a victory dance, if you will, to be able to have the sort of cash surplus that a company like Apple does and Google does. To share some of it is sharing the victory dance.”

AT&T Gains

AT&T gained 1.1 percent to $30.80 after being raised to the equivalent of buy at JPMorgan. The 9-month share-price estimate is $33.

McKesson rallied 4.4 percent to $91.75. The company held onto one of the U.S. government’s most lucrative non-defense contracts, overcoming protests by small drug distributors and competing bids by AmerisourceBergen Corp. (ABC) and Cardinal Health Inc. The victory maintains McKesson’s grip on the agreement, which has generated as much as $27 billion in orders since 2004.

Bed Bath & Beyond Inc. (BBBY) lost 0.9 percent to $69.47 after being downgraded to hold from buy at Canaccord Genuity Corp. The 12-month share-price estimate is $73.

The retreat in the S&P 500 may not be over, as a gauge of bullishness reached levels that coincided with the market’s peak in 2007 and preceded the biggest pullback in both of the last two years.

Positive Sentiment

The Consensus Bullish Sentiment index on stocks, based on a weekly survey of brokerage strategists and newsletter writers, exceeded 75 percent for seven weeks through April 3, the longest streak since Kansas City, Missouri-based Consensus Inc. began compiling the data in 1983. The index fell to 69 percent this week as the S&P 500 (SPX) had the worst five-day drop since November amid concern the recovery in the American labor market is slowing andEurope’s debt crisis is worsening.

Optimism has grown as the S&P 500 finished its best first- quarter rally since 1998, bolstered by better-than-expected economic data and corporate earnings. Increasing bullishness is considered a contrarian indicator by some analysts who follow price charts to make market predictions, because investors who have bought shares now have less money to purchase stocks.

“We’re concerned at what we view as very complacent bullish sentiment, almost frothy, and it needs to be unwound,” John Kattar, chief investment officer at Eastern Investment Advisors inBoston, which manages $1.7 billion, said in a telephone interview. “We should see some fear creeping back into the market, but we’re a long way from that happening yet.”


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