U.S. stock futures fluctuated, after the longest weekly rally in the Standard & Poor’s 500 Index since August, on concern a leadership change in Italy will disrupt efforts to curb debt and amid American budget talks.
American International Group Inc. slid 0.8 percent after the insurer said superstorm Sandy will cost the company about $1.3 billion. Apple Inc., the world’s most valuable company, dropped 1.3 percent after Jefferies & Co. cut its share-price estimate. McDonald’s Corp., the largest restaurant chain, added 1.9 percent as its November sales rose 2.4 percent globally.
S&P 500 index futures expiring this month dropped 0.1 percent to 1,414.8 at 9:15 a.m. New York time. Dow Jones Industrial Average futures added 1 point, or less than 0.1 percent, to 13,144 today. The number of shares changing hands in Stoxx Europe 600 Index’s companies was 73 percent above the 30- day average at this time of day.
“People are worried that the exit of Italy’s prime minister could abruptly derail the calmer feel recently surrounding the euro zone,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $325 billion. “Investors continue to struggle with uncertainty surrounding the fiscal cliff negotiations, weighed against fairly good economic reports emanating from both the U.S. and China. This tug of war is likely to keep the stock market range bound until we get an announcement out of Washington.”
Italian Prime Minister Mario Monti said he lost support and will resign, while his predecessor, Silvio Berlusconi, announced he will run for the premiership to roll back Monti’s budget rigor. China’s stocks rose the most among Asian equity markets today as the Shanghai Composite Index jumped to a four-week high after factory output and retail sales data beat economists’ estimates.
In the U.S., lawmakers from both parties are leaving rhetorical room for a split-the-difference agreement with President Barack Obama on a U.S. budget deal. The president and House Speaker John Boehner met one-on-one yesterday at the White House, with representatives for the two leaders offering no details of the negotiations yet issuing identical statements afterward that “the lines of communication remain open.”
AIG lost 0.8 percent to $33.85. The company will make a capital contribution of $1 billion to its U.S. property-casualty subsidiaries, the New York-based insurer said. Sandy’s cost was about $2 billion before tax, AIG said. Sandy made landfall in New Jersey in October and damaged homes, vehicles and commercial property while interrupting business in states including New York.
Apple slid 1.3 percent to $526.10. The company’s growth will likely decelerate in 2014, Jefferies analyst Peter Misek said in a note. He cut his share-price estimate to $800 from $900.
McDonald’s added 1.9 percent to $90.18. Analysts projected a gain of 0.2 percent for sales at stores open at least 13 months, the average of 14 estimates compiled by Consensus Metrix. Sales in the U.S. increased 2.5 percent, the Oak Brook, Illinois-based company said today in a statement. Analysts anticipated a drop of 0.6 percent.
Ingersoll-Rand Plc jumped 2.3 percent to $49.80. The company investor Nelson Peltz proposed breaking up plans to spin off its commercial and residential security businesses within the next year.
Companies in the S&P 500 are paying less in interest on debt than any time in at least a decade, leaving investors more dependent on economic growth and corporate spending for equity gains in 2013.
Constituents of the benchmark gauge for American stocks such as Exxon Mobil Corp. and Walt Disney Co. cut interest expenses to 2.39 percent of sales in the 12 months ended Sept. 30 on average, the lowest level since at least 2002, according to data compiled by Bloomberg and Strategas Research Partners. With borrowing expenses at record lows, executives are finding it harder to squeeze costs, causing profit margins to contract for the first time since 2009.
Bulls vs Bears
Bears say projected revenue growth of 3.8 percent for S&P 500 companies next year won’t be enough to drive higher profits without a decline in expenses. Bulls point to 8.9 percent profit growth estimated for next year, equity valuations at a 12 percent discount to the six-decade average and an economic recovery as reasons chief executive officers will start to spend the $1 trillion in cash they’ve built up since the recession.
“The consensus view is there’s not much more room for margin expansion,” Nick Sargen, who oversees $43 billion as chief investment officer at Fort Washington Investment Advisors in Cincinnati, said in a phone interview. “If we’ve plateaued on profit margins, then the case has to be that profit growth going forward is more a function of the overall growth rate of the U.S. and global economy.”