S&P hits new high; investors await manufacturing data

June 2, 2014 04:07 AM

U.S. stock-index futures were little changed, after the benchmark Standard & Poor’s 500 Index rose to a record, as investors awaited data on manufacturing in the world’s biggest economy.

American Realty Capital Healthcare Trust Inc. jumped 12 percent after Ventas Inc. agreed to buy it. Pharmacyclics Inc. rallied 8.4 percent as a report showed its leukemia drug beat GlaxoSmithKline Plc’s in a clinical trial. Broadcom Corp. climbed 13 percent after saying it will explore options for its cellular baseband business.

Futures on the S&P 500 expiring this month added less than 0.1 percent to 1,922.8 at 8:20 a.m. in New York, after climbing 1.2 percent last week. Dow Jones Industrial Average contracts gained 17 points, or 0.1 percent, to 16,721 today. Futures on the Nasdaq 100 Index rose less than 0.1 percent.

“We expect the ISM manufacturing data to be decent,” Kully Samra, who helps manage U.K. clients for Charles Schwab Corp. in London, said by phone. His firm manages $2.3 trillion globally. “We’re in the camp that believes weather was a big factor in affecting U.S. economic data in the first quarter. Economic numbers haven’t been that bad. The U.S. market is fully valued, and that’s in conversations a lot these days. But that’s not unusual in a long bull run.”

The S&P 500 has rebounded 5.9 percent since a selloff in small-cap and Internet shares spread to the broader market and dragged the gauge to a two-month low in April. It advanced 2.1 percent in May for a fourth straight monthly increase. The measure trades at 16.3 times the projected earnings of its members, up from 14.8 times four months ago.


Economic Growth

Forecasts for a rebound in U.S. growth in the second quarter and stimulus from central banks in Japan and Europe, along with higher-than-estimated corporate earnings, helped send the value of global shares to a record $64 trillion in May.

The S&P 500 ended the month at a record after shrugging off a report showing the U.S. economy contracted for the first time in three years during the first quarter. Federal Reserve policy makers said at their April meeting that the economy has strengthened after adverse weather took its toll. Central-bank stimulus has helped propel the S&P 500 higher by as much as 184 percent from its bear-market low in March 2009.

A report at 10 a.m. New York time may show the Institute for Supply Management’s manufacturing index rose to 55.5 in May from 54.9 a month earlier, according to the median estimate of economists in a Bloomberg survey. Readings above 50 signal expansion.


Payrolls Report

Economic data this week include reports on factory orders and car sales, as well as the government’s monthly payrolls report on June 6.

Investors will also be looking to Europe as Mario Draghi confronts the threat of deflation, preparing to unleash an array of measures to jolt the economy and ignite prices. From negative interest rates to conditional liquidity for banks, the European Central Bank president and his colleagues have signaled all options are up for discussion when they meet on June 5.

Of 50 economists surveyed by Bloomberg News, 44 expect the ECB to become the first major central bank to take interest rates into negative territory by cutting its deposit rate. All but 2 of 58 respondents said the benchmark rate would also be reduced.

ARC Healthcare rallied 12 percent to $11.15 today after Ventas said it will pay $2.6 billion in cash and stock to expand its elderly-housing business and add medical-office buildings.


Leukemia Drug

Pharmacyclics gained 8.4 percent to $96.27. A research report published in the New England Journal of Medicine showed the company’s Imbruvica drug helped leukemia patients live longer without their disease worsening than GlaxoSmithKline’s Arzerra treatment.

Ariad Pharmaceuticals Inc. jumped 11 percent to $7.15 after saying a trial showed its Iclusig drug was effective against gastrointestinal tumors in some patients. The Food and Drug Administration lifted a ban on the enrollment of new patients for the trial, Ariad said.

Broadcom climbed 13 percent to $35.99. The maker of communications chips has hired JPMorgan Chase & Co. to assist in exploring options. Baseband chips are used to connect phones to cellular networks, a business dominated by Qualcomm Inc.

About 1.8 billion shares traded each day in S&P 500 companies last month, the fewest since 2008, according to data compiled by Bloomberg. When the gauge hit an all-time high on May 23, only about 20 of its 500 companies reached 52-week highs, the data show. That’s the lowest number in a year.


Warning Sign

When volume and breadth wane even as stocks surge, it’s a warning sign that has preceded losses in the past, according to Sundial Capital Research Inc. in Blaine, Minnesota. Hayes Miller, who helps oversee $57 billion at Baring Asset Management Inc., says the skepticism shows investors distrust a rally built on Fed stimulus.

“Breadth is suggesting that the market is topping,” Miller, the Boston-based head of multi-asset allocation for Baring, said in a May 28 telephone interview. “This is not a good starting point for buying equities at this price. We all know that investors are induced into risk assets by central bank policies, which keep your safer options very unattractive.”

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