U.S. stocks fluctuated between gains and losses as investors weighed whether a report showing an unexpected contraction in manufacturing will bolster the likelihood the Federal Reserve maintains stimulus measures.
Bank of America Corp. and JPMorgan Chase & Co. dropped at least 1.3% as financial companies retreated. F5 Networks Inc. slid 5.5% after Morgan Stanley cut its rating on the maker of data-management equipment. Merck & Co. and Bristol-Myers Squibb Co. added more than 4.8% as the drugmakers’ newest versions of immune-boosting drugs show promise.
The Standard & Poor’s 500 Index fell 0.1% to 1,628.94 at 11:10 a.m. in New York after rising as much as 0.4% earlier. The Dow Jones Industrial Average added 44.17 points, or 0.3%, to 15,159.74. Trading in S&P 500 companies was 25% higher than the 30-day average at this time of day.
“The ISM report was decidedly negative,” John Lynch, the Charlotte-based regional chief investment officer for Wells Fargo Private Bank. His firm manages $170 billion. “I prefer for this market to be more data dependent going forward, but I think the market is using this report as another reason to say that one man’s speed bump is another man’s stepping stone. So the market is suddenly not concerned about tapering.”
The Institute for Supply Management’s May report showed manufacturing unexpectedly contracted in May at the fastest pace in four years, indicating the industry will provide scant support for the world’s largest economy. A separate report from the Commerce Department showed construction spending climbed in April, as private projects rose and public spending slumped.
The S&P 500 declined 1.1% last week as investors speculated the Fed will consider scaling back stimulus efforts as economic data improves. The benchmark equity gauge still rose for a seventh month, adding 2.1% in May for its longest monthly winning streak since September 2009. The index has risen 14% this year.
“The market has already priced in the risks of a certain level of tapering,” from the Federal Reserve, said James Butterfill, head of global equity strategy at Coutts & Co. In London. “That won’t happen in the near term. As the Fed’s primary focus is still core inflation, they’re likely to remain accommodative. We expect quantitative-easing expectations to continue to push markets higher. I don’t see any substantial correction for U.S. equities.”
Fed Chairman Ben S. Bernanke said two weeks ago the central bank could reduce monetary stimulus, known as quantitative easing, if officials see signs of sustained improvement in growth.
Six of 10 industries in the S&P 500 retreated, with financials falling 1% to pace the losers. Bank of America dropped 2.3% to $13.35 and JPMorgan slid 1.4% to $53.84 for the biggest losses in the Dow.
Bank of America’s $8.5 billion settlement with mortgage-bond investors is set to be considered by a New York court two years after it struck the deal to resolve claims over home loans bundled into securities.
F5 Networks declined 5.5% to $78.61 for the biggest drop in the S&P 500. Morgan Stanley downgraded the shares to equal weight, similar to a neutral rating, from overweight. The stock has dropped 19% this year.
Merck rose 4.9% to $48.98 and Bristol-Myers Squibb Co. added 6.7% to $49.04. The next generation of experimental immune-boosting drugs from the drugmakers are producing such promising early results that doctors at the American Society of Clinical Oncology meeting in Chicago are openly speculating that some patients with the deadliest form of skin cancer may be cured.
The S&P 500 has risen for seven straight months which, combined with its strong start to the year, may indicate further gains for stocks in June, according to Sam Stovall, S&P’s New York-based chief equity strategist.
A seven-month winning streak has happened 13 times since 1945 and it has led to advances of 0.4% on average in the eighth month as stock prices rose 62% of the time, Stovall wrote in a note today. The S&P 500’s advances in January and February may also help as the benchmark U.S. equity index has returned annual gains in each of the 26 years with such a positive start since World War II. The strong starts to the year have been followed by increases of 1% in June compared with its normal flat performance.
“Could sell in May have started in the end of the month, rather than the usual? One could easily infer that from the performance of the last three days,” the strategist wrote. “However, history says, but does not guarantee, that the S&P 500’s performance in June could surprise to the upside.”