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Stocks retreat as retail shares fall

Bloomberg News

May 28. 2014 8:23PM

NEW YORK — Stocks fell Wednesday, after a four-day rally lifted the Standard & Poor’s 500 index to a record, as losses among retailers overshadowed gains in phone shares and utilities.

Dollar General and Lowe’s slipped more than 2.2 percent after analysts cut their ratings on the shares.

Allergan dropped 5.4 percent as Valeant Pharmaceuticals International raised its unsolicited offer to about $49.4 billion. Toll Brothers, the largest U.S. luxury-home builder, gained 2.1 percent after reporting that profit more than doubled.

Twitter jumped 11 percent, the biggest increase in a month, after Nomura Holdings raised its recommendation on the stock.

The S&P 500 dropped 0.1 percent to 1,909.78. The Dow Jones industrial average retreated 42.32 points, or 0.3 percent, to 16,633.18.

“After hitting a high, the market is taking a little bit of a breather,” Michelle Clayman, chief investment officer at New Amsterdam Partners in New York, which manages $1.6 billion, said in a phone interview. “The fundamentals of the U.S. market still look decent.”

Phone companies and utilities added at least 0.4 percent for the two biggest gains among the 10 main industries in the S&P 500. The equities gauge is trading at 16.2 times the projected earnings of its members, compared with a five-year average of 14.3, according to data compiled by Bloomberg News.

A report by the Commerce Department on Thursday may show the U.S. economy contracted 0.5 percent in the first quarter, following a preliminary estimate of 0.1 percent annualized growth, according to economists surveyed by Bloomberg News.

GDP rose at a 2.6 percent annualized pace in the previous period. Economists forecast growth of 3.5 percent during the second quarter.

“People are focusing on the GDP number tomorrow,” John Traynor, chief investment officer of People’s United Bank Wealth Management in Bridgeport, Connecticut, said in a phone interview.

His firm oversees $5.2 billion. “There are two camps of investors. They seem to fall down on the side of, ’Is the economy at a point where it reaches a self-sustaining path?’”

Dollar General, an owner of discount stores, declined 3 percent to $54.60 as Deutsche Bank lowered the stock’s rating to hold from buy. Lowe’s fell 2.2 percent to $46.71.

Canaccord Genuity analysts told clients to sell shares of the home improvement retailer.

Allergan, the maker of the Botox anti-wrinkle drug, dropped 5.4 percent to $156.12.

Valeant added more cash to the bid in an effort to win backing from the target and its investors. As part of its defense, Allergan on Tuesday criticized Valeant’s management practices and operations, saying it believes the Canadian company’s organic sales growth is overstated.

Toll Brothers climbed 2.1 percent to $36.38.

The home builder has continued raising prices and boosting sales in the costlier New York and California markets.

Twitter jumped 11 percent to $33.77. Nomura raised its rating on the shares to buy from neutral. The operator of the social-networking site has tumbled 50 percent this year amid a rout in technology stocks.

3D Systems declined 11 percent to $50.44 after saying it will sell 5.95 million new shares for $317 million. The maker of printers that create three-dimensional objects will use the proceeds to fund acquisitions and as working capital.

Stryker climbed 2.8 percent to $82.64 after a Financial Times report that the company is preparing a takeover offer for Smith & Nephew.

The seller of orthopedic devices has retained investment bankers and is working on putting together financing for a takeover offer, the newspaper reported, citing people familiar with the matter. Stryker said it doesn’t intend to make an offer for Smith & Nephew.

Low volatility and interest rates that are holding in tight ranges have resulted in an “abnormal” trading market, Goldman Sachs Group President Gary Cohn said.

The Chicago Board Options Exchange volatility index climbed 1.5 percent to 11.68 on Wednesday. It is about 3 points from a record low.

“The environment for all the firms is quite difficult right now,” Cohn said Wednesday at an investor conference in New York. “What drives activity in our business is volatility. If markets never move or don’t move, our clients really don’t need to transact.”


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