BLBG: S&P 500 Advances on Takeovers as Nasdaq Index Turns Lower
Most U.S. stocks rose following an increase in takeover activity and better-than-forecast housing data. The Nasdaq Composite Index (VIX) turned lower after earlier rebounding from its biggest drop in two weeks.
Pfizer Inc. advanced 4.6 percent after proposing to buy AstraZeneca Plc for about 58.8 billion pounds ($98.7 billion). Technology stocks surged as Microsoft Corp. and Apple Inc. rallied more than 2.5 percent. Bank of America Corp. dropped more than 5 percent after announcing it will suspend its planned buybacks and dividend increase because of an error in its capital planning.
The Standard & Poor’s 500 Index climbed 0.2 percent to 1,866.98 at 11:28 a.m. in New York, paring an earlier gain of 0.7 percent. The Dow Jones Industrial Average increased 68.91 points, or 0.4 percent, to 16,430.37. The Nasdaq Composite slipped 0.3 percent, reversing a 0.9 percent advance. Trading in S&P 500 stocks was 25 percent above the 30-day average at this time of day.
“The thing about the Nasdaq is that it is where the bulk of the momentum names are concentrated,” Randy Frederick, managing director of trading and derivatives at Charles Schwab Corp., which oversees $2.3 trillion in client assets, said in a phone interview. “Just like they outperform the market when the market goes up, they tend to underperform on the way down. If people start to feel comfortable with what’s going on, they’ll begin to go back into these names.”
The Nasdaq Composite declined 0.5 percent last week, including a 1.8 percent tumble on April 25, as disappointing results from Amazon.com Inc. triggered a selloff in technology shares and tensions over Ukraine intensified.
Economic Reports
The S&P 500 traded at 15.9 times estimated earnings on April 25. The gauge’s multiple has surged 44 percent since reaching an almost three-year low of 11 in October 2011.
A report by the National Association of Realtors showed contracts to purchase previously owned U.S. homes climbed in March by the most in almost three years, showing residential real estate was starting to stabilize entering the spring selling season. The pending home sales index rose 3.4 percent, the first gain in nine months, after a 0.5 percent drop in February that was smaller than initially reported.
A busy calendar this week will give investors more clues about the strength of the economy and the pace of the Federal Reserve’s stimulus program.
The government’s initial tally of first-quarter gross domestic product on April 30 may show the slowest expansion in a year. Federal Reserve policy makers, who on the same day conclude their third meeting of the year, will probably reduce the pace of assets purchases designed to stoke the economy.
Jobs Data
Three rounds of monetary stimulus have helped fuel economic growth, sending the S&P 500 surging as much as 180 percent from its 2009 low.
Payroll growth probably accelerated in April as companies remained upbeat about the economy’s prospects after a setback in demand caused by snowstorms and colder temperatures earlier this year. Employers added 215,000 workers, the most since November, economists project a May 2 report from the Labor Department will show.
“People are starting to place bets on what the rest of the week is going to bring,” James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $357 billion in assets, said by phone. “We’re looking at the possibility of a 200,000-plus payroll number right now and there’s a little bit of weakness coming into this. People are thinking this is an opportunity to get back in here if we get some decent numbers.”
Russia Sanctions
Investors are also watching developments in Ukraine. The Obama administration imposed sanctions on seven Russian officials and 17 companies linked to Russian President Vladimir Putin’s inner circle involved in banking, energy and infrastructure.
The sanctions, announced by the White House, are being imposed in conjunction with the European Union, which is set to make its own list public today, as the U.S. and its allies move to punish Russia for escalating the crisis in Ukraine.
Pfizer added 3.9 percent to $31.95. The world’s largest drugmaker is still interested in a deal after AstraZeneca spurned its earlier offer. Pfizer proposed buying the London-based company on Jan. 5 for 46.61 pounds a share in cash and stock, and AstraZeneca declined to pursue negotiations, the New York-based company said in a statement today. The bid was about 14 percent above AstraZeneca’s closing price on April 25.
General Electric Co. rose 0.5 percent to $26.74 after Chief Executive Officer Jeffrey Immelt met with France’s President Francois Hollande over the company’s offer for Alstom SA. Immelt may be moving closer to pulling off his largest-ever acquisition, even after French officials over the weekend urged Alstom to consider a rival offer from Germany’s Siemens AG.
GE, Alstom
The government doesn’t oppose GE’s proposal, and the meeting in Paris today focused on protecting jobs and maintaining the independence of France’s nuclear industry, according to a person with knowledge of the discussions. The state doesn’t favor either bid, the person said, asking not to be named as the talks weren’t public.
Newmont Mining Corp. dropped 5.9 percent to $24.90. Barrick Gold Corp. said Newmont ended discussions about a takeover, which would have combined the world’s two largest gold producers. Talks between Newmont and Toronto-based Barrick broke down on April 18 over a disagreement about a proposed spinoff of some of the combined company’s assets, people familiar with the situation said the following day.
Tech Shares
Technology companies in the S&P 500 advanced 0.9 percent, leading gains among sectors in the benchmark. Broadcom Corp. jumped 3.4 percent to $30.76, while Microsoft surged 2.6 percent to $40.94 and Apple climbed 3.3 percent to $591.05. The fear gauge for technology stocks shows little panic among investors even after the Nasdaq 100 Index’s wildest swings in two years.
The Chicago Board Options Exchange’s measure of expectations for future volatility on the Nasdaq 100 fell 4.1 percent to 18.59 last week, the lowest level since 2012 compared with a gauge tracking the magnitude of recent share-price moves. That shows traders aren’t too worried that declines will dramatically worsen after stocks from Amazon.com Inc. to Netflix Inc. slid more than 5 percent last week.
The Nasdaq 100 has fallen in four of the past five weeks amid concern earnings growth is too slow to justify equity valuations. Losses were heaviest in companies that have posted the biggest gains in the past five years.
‘Gut Punch’
“Usually when there’s a gut punch, things turn around,” Randall Warren, who manages more than $100 million at Exton, Pennsylvania-based Warren Financial Service, said by phone on April 25. “The potential to the upside seems a lot stronger because the economy seems like it’s getting slightly better. The drop we’ve had has been pretty precipitous already.”
CBOE’s Volatility Index, a gauge of options prices on the S&P 500, rose 1.8 percent to 14.31 for a fourth straight gain, including a 5.6 percent advance on April 25.
Bank of America lost 5.2 percent to $15.12. The bank said it will suspend its planned buybacks and dividend increase because of an error in its capital planning. The lender will resubmit its proposal to the Federal Reserve, the Charlotte, North Carolina-based bank said in a statement. The company said it incorrectly adjusted for cumulative realized losses on structured notes issued by Merrill Lynch.
To contact the reporters on this story: Inyoung Hwang in London at ihwang7@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net
To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net; Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland, Michael P. Regan
