US Stocks Fall

U.S Stocks Fall Scott Eells/Bloomberg
Traders work on the floor of the New York Stock Exchange (NYSE) in New York.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Scott Eells/Bloomberg
.U.S. stocks advanced, preventing the longest Dow Jones Industrial Average slump since 1978, amid speculation the Federal Reserve may consider another economic stimulus program to prevent a recession.

MasterCard Inc. (MA), the second-biggest payments network, gained 13 percent after profit rose 33 percent as customers’ spending increased. Coca-Cola Co. (KO) and General Electric Co. (GE) added at least 1.5 percent, leading the Dow’s gain. Technology stocks in the Standard & Poor’s 500 Index climbed 1.2 percent, the most among 10 groups. Sprint Nextel Corp. (S) jumped 3.8 percent as Macquarie Group Ltd. raised its recommendation for the shares.

The Dow rose 29.82 points, or 0.3 percent, to 11,896.44 at 4 p.m. in New York after posting a 166-point loss earlier, which was the ninth straight drop. The S&P 500 advanced 0.5 percent to 1,260.34, snapping a seven-day decline.

“Every time we see economic weakness, there will be discussion about more stimulus,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in telephone interview. “That could be the case given the fairly weak economic figures we’ve had. In addition, the market has given back a lot recently and people started to look at some bargains.”

Stocks rebounded after the Wall Street Journal reported that three former top officials at the Fed said the central bank should consider a new round of securities purchases to bolster economic growth. The Fed finished its second round of so-called quantitative easing, nicknamed “QE2” by investors, at the end of June. The program helped propel a rally of as much as 28 percent in the S&P 500 since Fed Chairman Ben S. Bernanke foreshadowed the plan on Aug. 27.

Valuation Sinks
The S&P 500 erased its 2011 gain yesterday and its valuation sank to 13.8 times reported earnings, the cheapest level since July 2010. Growing concern that the U.S. economy is faltering has erased $1.07 trillion from American equities in less than two weeks, according to data compiled by Bloomberg.

The S&P 500 plunged 2.6 percent yesterday, its biggest one- day loss in a year and giving the index the longest losing streak since October 2008, in the depths of the financial crisis caused by Lehman Brothers Holdings Inc.’s bankruptcy. Investors sought the safety of Treasuries, gold and the Swiss currency even as President Barack Obama signed a plan to raise the federal debt limit before a possible default.

Attention has shifted to weakening economic data, including yesterday’s 0.2 percent decrease in consumer spending, the slowest growth in personal incomes since November and an index of American manufacturing sinking to a two-year low.

Economic Data
Stocks fell earlier today after a report showed service industries expanded in July at the slowest pace since February 2010 as orders and employment cooled, a sign the biggest part of the U.S. economy had little momentum entering the second half. The Institute for Supply Management’s index of non-manufacturing businesses dropped to 52.7 from 53.3 in June. Readings above 50 signal expansion, and economists projected 53.5 for July, according to the median forecast in a Bloomberg News survey.

Companies in the U.S. added 114,000 workers to payrolls in July, according to figures from ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for an advance of 100,000. The data comes two days before a government report projected to show an increase of 85,000 jobs.

“This is what slow growth is going to feel like,” Charles Stamey, a managing director at Manning & Napier Advisors Inc. in St. Petersburg, Florida, said in a telephone interview. His firm oversees $42 billion “We’re seeing lots of persistent headwinds that we are going to have to adjust to. The stock market should look cheaper because we’re not having the growth that we’ve historically had.”

‘Strong Buy’
U.S. stocks have become a “strong buy” following declines in the past seven days, according to Barton Biggs, managing partner and co-founder of Traxis Partners LP in New York. Biggs spoke on Bloomberg Television’s “InsideTrack” with Erik Schatzker and Deirdre Bolton.

“I do feel right now this is not the time to put out any shorts and I am very tempted to think this is a time to be buying stocks pretty aggressively,” said Biggs, whose firm manages $1.4 billion.

Per-share earnings increased 17 percent and sales rose 12 percent among the S&P 500 companies that have released quarterly results since July 11, according to data compiled by Bloomberg. About 77 percent of the 363 companies have topped the average analyst profit forecast, the data show.

MasterCard rallied 13 percent to $338.47. Net income rose to $608 million, or $4.76 a share, from $458 million, or $3.49, in the same period a year earlier. The average estimate of 29 analysts surveyed by Bloomberg was for $4.23 a share.

Sprint, CBS
Sprint gained 3.8 percent to $4.15. The third-largest U.S. mobile-phone carrier was raised to “neutral” from “underperform” at Macquarie. The 12-month share-price estimate is $4.60.

CBS Corp. (CBS) climbed 1.6 percent to $26.70. The owner of the most-watched U.S. television network said second-quarter profit soared, beating analysts’ estimates as sales of reruns and fees from cable TV systems increased.

The seven-day plunge in the S&P 500 caused the most pronounced herd mentality among investors in four months. The Chicago Board Options Exchange S&P 500 Implied Correlation Index jumped to 64.80 yesterday, the highest level since the March sell-off prompted by Japan’s record earthquake and tsunami. It uses equity-derivative prices to measure traders’ expectations for how much S&P 500 stocks will move in tandem during the next 30 days.

“The world is much more focused on macro events,” Nelson Saiers, chief investment officer of Alphabet Management LLC, said in a telephone interview yesterday. The New York-based volatility hedge fund manages $635 million and is up 8.9 percent this year. “People are more nervous, and you can see that in implied correlation.”