NEW YORK – U.S. stocks fell, after the Standard & Poor’s 500 Index climbed to a five-year high, as investors awaited the start of the corporate earnings season tomorrow.
Illumina Inc. tumbled 8.5 percent after Roche Holding AG Chairman Franz Humer told a Swiss newspaper that a deal to buy the U.S. genetics company is off the table. Applied Materials Inc., the world’s largest producer of chipmaking equipment, lost 3.2 percent after being downgraded at JPMorgan Chase & Co.
The S&P 500 fell 0.4 percent to 1,460.13 at 9:45 a.m. New York time. The Dow Jones Industrial Average lost 62.90 points, or 0.5 percent, to 13,372.31. Trading in S&P 500 companies was 26 percent above the 30-day average at this time of day.
“We’ve come a long way in a very short time,” said Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York, said in a phone interview. “I’m expecting better-than-anticipated earnings. Yet we need to see some consolidation first.”
The S&P 500 ended last week at the highest level since 2007 after data showed employers added workers in December at about the same pace as the prior month. The gauge rallied 2.5 percent on Jan. 2 after Republicans and Democrats agreed on a compromise budget that avoided the so-called fiscal cliff of sweeping tax increases and spending cuts.
Earnings season
Alcoa Inc. will unofficially kick off the U.S. earnings reporting season after the market closes tomorrow. Fourth- quarter profits at S&P 500 companies grew an average 2.9 percent, according to data compiled by Bloomberg. Excluding financial companies, earnings increased 0.5 percent.
Illumina Inc. tumbled 8.5 percent to $50.10. The interview “discounts Roche’s intent to purchase Illumina medium-term,” Ross Muken, a New York-based analyst for ISI Group LLC, wrote in a note to investors late yesterday. “We do not believe this precludes Roche from returning to Illumina as a targeted asset in the future and does not diminish its attractiveness as a potential M&A target.”
Applied Materials dropped 3.2 percent to $11.44. The stock was downgraded to underweight from neutral at JPMorgan by equity analyst Christopher Blansett. The 12-month share-price estimate is $10.
Yahoo! Inc. declined 1.6 percent to $19.55. The biggest U.S. Web portal was cut to market perform from outperform at Sanford C. Bernstein & Co.
Apple Inc., the world’s most valuable company, slid 1.8 percent to $517.55 after Barclays Plc slashed its share-price estimate to $740 from $800.
Amazon.com Inc. rallied 2.7 percent to $266.25. The world’s largest online retailer was raised to overweight from equal weight at Morgan Stanley.
Walgreen Co. rose 1.6 percent to $37.76. The largest U.S. drugstore chain was raised to buy from hold at Jefferies Group Inc. by equity analyst Scott Mushkin. The 12-month share-price estimate is $47.
Speculators are abandoning money-losing bets that stocks with the closest links to the U.S. economy will fall as America’s most-hated shares stage the best rally in a year relative to the broader market.
The 20 stocks with the highest short sales in the S&P 500 rose an average of 5.1 percent in December, compared with 0.7 percent for the full gauge, according to data compiled by Bloomberg. The performance gap is the widest since January 2012. Companies from U.S. Steel Corp. to J.C. Penney Co. are gaining at the expense of phone companies and utilities, which usually do best when the economy contracts.
Bulls vs bears
Market bulls say the capitulation underscores growing confidence in the U.S. recovery, while bears say the rally shows indiscriminate buying as earnings estimates fall close to a one- year low. The change echoes money manager Laszlo Birinyi’s prediction that the four-year bull market will finally attract investors who have stayed away from equities.
“Let’s put it this way, I made more money on my longs than on my shorts,” Gilles Sitbon, who helps oversee $2.1 billion at Sycomore Asset Management in Paris, said in a phone interview on Jan. 3. His Sycomore Long-Short Opportunities fund rose 15 percent in 2012. “It’s not just hard to be short, it is painful.”
