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U.S. Stocks Decline on Durable Goods Orders, Bernanke
U.S. stocks were little changed as orders for durable goods rose less than estimated and Federal Reserve Chairman Ben S. Bernanke said the economic recovery isn’t assured, bolstering bets on further policy easing.
Caterpillar Inc. and Alcoa Inc. dropped at least 1.5 percent to pace losses among the biggest companies. Medco Health Solutions Inc. (MHS) rallied 4.2 percent after saying its $29.1 billion takeover by rival pharmacy-benefits manager Express Scripts Inc. may be completed as early as next week.
“Bernanke confirmed again that the Fed will keep monetary policy accommodative for the foreseeable future and would be prepared to do more should the economy falter later this year,” said Mark Bronzo, who helps manage about $125 billion at Guggenheim Investments, in Irvington, New York. “The equity markets have had a big move but due to the typical window dressing at the end of the quarter we expect the markets to hold on to its gains in the short term.”
Stocks swung between gains and losses after data showed that bookings for goods meant to last at least three years advanced 2.2 percent, less than projected after a revised 3.6 percent decline the prior month, data from the Commerce Department showed. Bernanke said unemployment remains too high, the economic recovery isn’t guaranteed and policy makers don’t rule out any further options to boost growth.
“It’s far too early to declare victory,” Bernanke said, according to a transcript of an interview with ABC News anchor Diane Sawyer provided by the network. “The recent news has been good. But I think we need to be cautious and make sure this is sustainable. And we haven’t quite yet got to the point where we can be completely confident that we’re on a track to full recovery.”
The S&P 500 (SPX) climbed 12 percent from the end of last year through yesterday, poised for the best first quarter since 1998, amid better-than-forecast earnings and economic data. Technology and financial shares rose the most among 10 groups, surging more than 21 percent so far in 2012.
Medco rallied 4.2 percent to $71.88. Express Scripts, based in St. Louis, agreed in July to buy Medco to create the biggest U.S. pharmacy benefits manager. Pharmacy benefits managers act as middlemen among drugmakers, pharmacies and health-plan sponsors to negotiate prices and manage the use of drugs by patients.
Aeropostale Inc. (ARO) gained 2.6 percent to $22.10. The teen- apparel retailer was raised to outperform from neutral at Wedbush Securities Inc., which cited “improved fashion designs.” The rating means Aeropostale is expected to beat the median total return of the companies covered by the analyst over the next six to 12 months.
Arena Pharmaceuticals Inc. (ARNA) fell 7.4 percent to $3.02. The biotechnology company was cut to neutral from overweight at Piper Jaffray Cos., which cited the share price. The stock had gained 85 percent from March 16 through yesterday.
U.S. companies are better positioned for “cashing out” shareholders than at any other time in more than half a century, according to Myles Zyblock, chief institutional strategist at RBC Capital Markets.
Corporate cash increased by more than $200 billion in each of the past three years, including a $340.9 billion surge last year. Companies are poised to sustain the growth rate in their “cash mountain,” Zyblock wrote two days ago in a report.
Many companies are raising more money through bond sales because interest rates are low, the Toronto-based strategist wrote. The yield on a Moody’s Investors Service index of Baa rated corporate debt has averaged 5.2 percent this quarter, about 0.9 percentage point less than a year earlier.
Increased cash and relatively cheap debt financing will lead to growth in dividends as well as stock repurchases, the report said.
Health-care and technology companies have the most room to lift payouts and buy back more shares, Zyblock wrote. The groups have the highest percentage of cash to assets for non-financial companies, based on figures for the S&P 500 that he cited. Energy producers are another possibility, he added, because they have relatively little debt.
Durable Good Orders Tepid
WASHINGTON (Reuters) – New orders for long-lasting factory goods rose less than expected in February and a gauge of future business investment also fell short of forecasts, casting a shadow on the manufacturing sector’s support of the recovery.
Durable goods orders rose 2.2 percent last month, only partially reversing January’s revised 3.6 percent decline, Commerce Department data showed on Wednesday.
“The economy is slowly improving, but it is definitely a halting recovery where we’re not accelerating to any great degree,” said Liam Dalton, president of Axiom Capital Management Inc in New York.
Economists had forecast orders rising 3.0 percent last month.
Manufacturing has been a key support for the U.S. recovery from the 2007-2009 recession, and a recent acceleration in job growth has boosted hopes the extra income will create a virtuous cycle that leads to more spending, faster growth and further hiring.
But Wednesday’s data suggested the factory sector might not be growing as fast as analysts have expected, and U.S. stock index futures pared gains after the data’s release. Prices for U.S. government debt trimmed losses.
Durable goods range from toasters to big-ticket items like aircraft which are meant to last three years and more.
Excluding transportation, orders climbed 1.6 percent. Economists had expected that reading to increase 1.7 percent. Machinery orders increased 5.7 percent..
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The Environmental Protection Agency’s proposal would effectively stop the building of most new coal-fired plants in an industry that is moving rapidly to more natural gas. But the rules will not regulate existing power plants, the source of one third of U.S. emissions, and will not apply to any plants that start construction over the next 12 months.
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