Investors weigh the prospects for economic growth amid merger activity.
AT&T Inc. dropped 1.9 percent, after agreeing to buy DirecTV, the largest U.S. satellite-TV company, for $48.5 billion. Pfizer Inc. rose 1.4 percent after AstraZeneca Plc rejected the drugmaker’s $117 billion offer. Campbell Soup Co. lost 3.8 percent after lowering its sales forecast for the year.
The S&P 500 gained 0.1 percent to 1,879.91 at 9:49 a.m. in New York. The Dow Jones Industrial Average dropped 3.74 points, or less than 0.1 percent, to 16,487.57. The Russell 2000 Index added 0.4 percent. Trading in S&P 500 companies was 3.6 percent below the 30-day average for this time of day.
“We’ve had some disappointing data that caused market participants to take a close look,” said Joost van Leenders, who helps oversee about $650 billion as a strategist at BNP Paribas Investment Partners in Amsterdam. “U.S. valuations are on the high side, so if you want to go even higher you need growth, and not just earnings growth. Earnings have done well, stronger than expected. The negativity is more on the economic- data front.”
The S&P 500 retreated less than 0.1 percent last week amid reports that showed consumer confidence fell in May from a nine- month high, while industrial production unexpectedly declined last month.
The benchmark index reached an all-time high on May 13 before a selloff in small-cap stocks spread to the broader market. The Russell 2000 Index of small-cap stocks fell 0.4 percent last week, and is 8.5 percent below its record from March.
The S&P 500 (CME:SPM14) is trading at 17.3 times reported earnings, near the highest level since 2010. Of the 466 S&P 500-listed companies that have released results this season, 76 percent have beaten estimates for profit, while 53 percent have exceeded projections for revenue.
Federal Reserve Chair Janet Yellen said last week the U.S. economy has further to go to achieve full health and predicted small businesses will play a vital role in the recovery.
The central bank will release on May 21 minutes from its latest meeting. Policy makers said last month the economy is showing signs of picking up and the job market is improving. The central bank pared its monthly asset-buying and said further reductions in “measured steps” are likely.
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.
“We’ve seen a lot of volatility but not a lot of direction in the past few months and that’s what’s become the norm,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said in a phone interview. “We don’t think we’re near a major market top. Those are generally characterized by a lot of optimism and euphoria and we don’t think that’s the case.”
The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, rose 1.8 percent to 12.66. The measure has lost 7.7 percent this year.
Six of the 10 main S&P 500 groups rose today, with health- care, raw-material and energy companies gaining at least 0.3 percent. Phone and utility shares had the largest declines, retreating more than 0.7 percent.
AT&T lost 1.9 percent to $36.05 today. The second-largest U.S. wireless carrier will pay $95 for each share of DirecTV, split between $28.50 in cash and the equivalent of $66.50 in stock, the companies said yesterday. That’s a 10 percent premium to DirecTV’s closing price on May 16. Including net debt, the deal values the largest U.S. satellite-TV company at $67.1 billion.
DirecTV retreated 2 percent to $84.46.
Genworth Financial Inc. fell 2.4 percent to $17.23. Morgan Stanley downgraded shares of the life insurer to underweight, the equivalent of a sell rating, from equal weight, or neutral. Morgan Stanley cited the stock’s performance in the last year and said future positive outcomes are already priced into the shares. Genworth has gained 64 percent in the past 12 months.
Campbell Soup dropped 3.8 percent to $43.42. The packaged foods producer lowered its sales forecast for 2014 after reporting third-quarter sales that missed analysts’ estimates.
Pfizer climbed 1.4 percent to $29.53. AstraZeneca rejected Pfizer’s sweetened 69.4 billion-pound ($117 billion) takeover offer, saying the bid fails to reflect the value of the pipeline of experimental medicines. Pfizer said its offer was final and the company will not go to shareholders with a hostile bid.