U.S. Stocks Drop, Led By Commodity Shares, as Oil, Metals Fall

June 28 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 Index lower for the fifth time in six days, as declines in oil and metal prices dragged down commodity producers.

Exxon Mobil Corp. lost 1.1 percent as oil slid from a seven-week high. Freeport-McMoRan Copper & Gold Inc. sank 2.9 percent. Altria Group Inc. rallied 3.3 percent as the Supreme Court rejected a White House appeal of a racketeering case against tobacco companies. Sprint Nextel Corp. climbed 6.2 percent on President Barack Obama’s plan to increase airwaves available for smartphones, laptops and new wireless devices.

The S&P 500 decreased 0.2 percent to 1,074.57 as of 4 p.m. in New York after gaining as much as 0.5 percent. The Dow Jones Industrial Average slipped 5.29 points, or 0.1 percent, to 10,138.52. About three stocks retreated for every two that rose on U.S. exchanges.

“There’s not a great deal of conviction in this market,” said Michael Shaoul, chairman of Marketfield Asset Management, which oversees more than $800 million and whose flagship fund beat 97 percent of peers over the last year. “In general 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.”

The S&P 500 is poised for an 8.1 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.

2010 Retreat

The measure remains 3.6 percent lower in 2010, trimming its valuation to less than 16 times the reported earnings of its companies, near the lowest level in almost a year.

Benchmark indexes opened higher following a report showing 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.

Exxon Mobil, the largest U.S. energy company, retreated 1.1 percent to $58.47. Energy shares in the S&P 500 lost 1.3 percent as a group, the biggest decline among 10 industries.

Oil retreated on speculation that production in the Gulf of Mexico will be unaffected by a tropical storm in the region. Oil for August delivery fell 61 cents, or 0.8 percent, to $78.25 a barrel in New York. Futures have dropped 6.6 percent in the quarter and 1.4 percent this year.

Gold, Copper

Freeport-McMoRan slid 2.9 percent to $64.66. Gold dropped in New York after the precious metal failed to sustain gains above $1,260 an ounce, prompting selling by investors who had earlier speculated that prices would reach a record. Copper prices fell for the first time in three sessions as the dollar’s advance curbed demand for the metal as an alternative investment.

Alcoa Inc. fell 1.8 percent to $11.03. The largest U.S. aluminum maker agreed to buy closely held Traco to expand its offering of windows and doors for commercial buildings. The transaction is expected to be completed by the end of the third quarter, Alcoa said.

Boeing Co. sank 2.1 percent to $67.30. Dubai Aerospace Enterprise said it is seeking to renegotiate plane orders with the airplane company and Airbus SAS as it attempts to reduce its debt levels, French daily Les Echos reported, citing unidentified people. Boeing shares fell as much as 44 percent in trading before the open of U.S. exchanges before the trades were canceled, according to data compiled by Bloomberg.

‘One Way or Another’

Benchmark indexes fluctuated for much of the day, with tobacco and telephone companies leading the market higher in afternoon trading before the S&P 500 turned decisively lower in the session’s final hour.

“The resolution of the conflict between the bulls and the bears is likely to be resolved one way or another over the next three weeks,” said Hugh Johnson, who oversees $1.85 billion as chairman of Albany, New York-based Johnson Illington. “Nobody wants to jump in too soon. That’s why you have a little bit of a plus then a little bit of a minus, there’s no big mover.”

Altria gained 3.3 percent to $20.34. Shares of the largest U.S. tobacco company surged after the Supreme Court refused to hear an Obama administration appeal, all but ensuring that the racketeering suit first pressed by former President Bill Clinton’s administration won’t result in financial penalties against Altria’s Philip Morris USA and R.J. Reynolds Tobacco Co.

‘Sector Rotation’

Reynolds American Inc. shares rallied 4.1 percent to $53.45. Lorillard Inc. shares climbed 2.5 percent to $73.54. Tobacco shares sent a gauge of consumer-staples companies in the S&P 500 to a 1.1 percent advance, the biggest gain among 10 groups.

“You’re getting sector rotation into consumer staples,” said Chad Morganlander, a portfolio manager at Stifel Nicolaus & Co. in Florham Park, New Jersey, which has about $90 billion in client assets. “Government stimulus is subsiding and that warrants concern and kicks off a run into the long-end of the yield curve and sector rotation out of economically sensitive companies into staples.”

Sprint Nextel rallied 6.2 percent to $4.46, Tellabs Inc. soared 8.2 percent to $6.89 and AT&T Inc. rose 0.7 percent to $25.05 to lead telephone companies to the second biggest gain among 10 groups in the S&P 500. Obama signed a memorandum that commits the U.S. to free up 500 megahertz of government and commercial spectrum in the next 10 years, to meet demands for mobile access to broadband services.

G-20 Meeting

European stocks advanced after Group of 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 welcomed the deficit-cutting goal even as he warned against acting too quickly to pull back stimulus measures. Obama also said at the conclusion of summit that the U.S. will be watching closely as China relaxes its currency policy.

“Coming out of the G-20 summit some countries are pursuing aggressive tightening of fiscal policy whereas others are continuing to have more stimulative programs,” said Eric Teal, who oversees about $4.5 billion as chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina. “Divergent views as how to best stimulate growth are causing some uncertainty in the markets.”

Earnings Watch

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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