U.S. Stocks Advance on G-20 Deficit Pledge, Consumer Spending
'There’s not a great deal of conviction in this market,' said Michael Shaoul, chairman of Marketfield Asset Management. Photographer: Daniel Acker/Bloomberg
June 28 (Bloomberg) -- Consumer spending in the U.S. rose 0.2 percent in May, more than forecast, a sign households are gaining confidence in the recovery and the job market. Personal income climbed 0.4 percent. Bloomberg's Betty Liu and Mike McKee report. (Source: Bloomberg)
June 28 (Bloomberg) -- Jeffrey Palma, global equity strategist at UBS AG, discusses his investment strategy. Palma, talking with Betty Liu, Jon Erlichman and Sheila Dharmarajan on Bloomberg Television's "In the Loop," also discusses the U.S. economy and bond market. (Source: Bloomberg)
U.S. stocks rose as a bigger-than- forecast rise in consumer spending and a pledge by Group of 20 leaders to cut deficits offset smaller-than-estimated growth in personal incomes.
Transocean Ltd., the company that leased the Deepwater Horizon drilling rig in the Gulf of Mexico to BP Plc, advanced after the British oil company reiterated its August timeline for plugging the well. Alcoa Inc. and American Express Co. led declines in Dow Jones Industrial Average shares.
The Standard & Poor’s 500 Index gained 0.1 percent to 1,077.54 as of 9:35 a.m. in New York. The Dow Jones Industrial Average gained 4 points, or less than 0.1 percent, to 10,147.81.
“There’s not a great deal of conviction in this market,” saidMichael Shaoul, chairman of Marketfield Asset Management, which oversees more than $800 million. “There seems to be a lack of buyers in the equity market and I think that’ll stay in place through the end of the quarter.”
Consumer purchases rose 0.2 percent after little change the prior month, Commerce Department figures showed. Incomes climbed 0.4 and the savings rate increased to the highest level in eight months.
Quarterly Retreat
The S&P 500 is poised for a 7.4 percent second-quarter retreat, snapping a four-quarter streak of gains. The index rallied 9.2 percent from the end of 2009 through this year’s high on April 23 amid signs of improvement in the global economy. The gauge then tumbled 14 percent through June 7 on concern Europe’s debt crisis may derail the economic recovery.
The measure remains 3.2 percent lower in 2010, trimming its valuation to about 16 times the reported earnings of its companies, near the lowest level in almost a year.
G-20 leaders responded to the European debt crisis with deficit-reduction targets and agreed to pursue higher capital requirements for banks once economic recoveries take hold. Advanced G-20 economies will aim to halve deficits by 2013 and start to stabilize their debt-to-output ratios by 2016, the group said in a statement yesterday after a meeting in Toronto. Leaders said nations can move at their own pace and also pledged to fulfill existing stimulus plans.
Obama on Growth, China
President Barack Obama welcomed the deficit-cutting goal set by the G-20 nations even as he warned against acting too quickly to pull back on measures to stimulate economic growth. Obama also said at the conclusion of summit yesterday that the U.S. will be watching closely as China relaxes its currency policy.
Equities “will be supported by valuations, monetary policy and earnings upgrades,” Ian Scott, a London-based stocks strategist at Nomura Holdings Inc. wrote in a report sent to investors today.
UBS AG’s average estimate for earnings in 2011 for companies on the S&P 500 would fall 7.2 percent to $90 were the European economy to slip back into recession, strategist Jonathan Golub wrote in a report today. The average estimate for earnings-per-share for S&P 500 companies in 2011 is $88.60, according to a survey of 10 strategists from June 21.
Stock prices are mirroring government bond yields more than ever, a signal to bulls that shares may be poised to rally. The S&P 500 and 10-year Treasury rates posted a correlation coefficient of 0.8412 in the 60 trading days through June 16, showing stock prices and bond yields were the most linked in Bloomberg data going back to 1962. The last time the relationship was almost this strong during an economic expansion was at the beginning of the 2002 to 2007 bull market, when the benchmark gauge for U.S. equities doubled.
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