US stocks rebound after better retail sales, Citigroup profit

Staff Writer
Columbus CEO

(c) 2014, Bloomberg News.

NEW YORK — U.S. stocks rebounded from the worst weekly losses in two years, weathering a selloff at the start of the final hour, after data showed retail sales increased the most since 2012 and Citigroup earnings unexpectedly rose.

Citigroup advanced 4.4 percent as the company recouped funds previously set aside for bad loans and cut losses at a division holding unwanted assets. Edwards Lifesciences gained 11 percent, the most in the Standard & Poor's 500 Index, after a court ruled to limit U.S. sales of peer Medtronic's CoreValve system. Energy producers, technology stocks and consumer companies led the recovery from last week's slump.

The S&P 500 jumped 0.8 percent to 1,830.61 at 4 p.m. in New York. The gauge briefly erased an earlier rally of 1 percent before surging at the end of the day. The Dow Jones Industrial Average gained 146.49 points, or 0.9 percent, to 16,173.24 on Monday. The Nasdaq Composite Index of technology stocks rose 0.6 percent and the Russell 2000 Index added 0.4 percent.

"When you have a market down so much over the past few weeks, people are getting a little bit worried," Brent Schutte, senior investment strategist at BMO Global Asset Management in Chicago, said in a phone interview. The firm runs over $128 billion. "Any time you get incrementally better U.S. data and decent earnings, you have a backdrop to go higher."

A retreat in so-called high-beta stocks including Facebook dragged the Nasdaq Composite down as much as 0.3 percent during the day. Internet stocks and biotechnology companies are considered to have higher beta, or volatility, than the market because their earnings potential is hard to predict. The Nasdaq Biotechnology Index was little changed on Monday after rallying as much as 2.7 percent. It's fallen 21 percent from a February high.

"Right now everyone is watching beta to figure out whether or not the beta flush trade is over," Yousef Abbasi, a market strategist at JonesTrading Institutional Services in New York, said in an interview. "That is dictating overall market sentiment."

About 6 billion shares changed hands on U.S. exchanges on Monday, the slowest trading in a month.

The S&P 500 slid 2.6 percent last week amid disappointing results at JPMorgan Chase and signs hedge funds were dumping the bull market's best performers. The benchmark index dropped as much as 4 percent from an all-time high on April 2 as concern grew that valuations may be too high as earnings season begins.

Coca-Cola, Goldman Sachs, Yahoo, Google and General Electric are among companies scheduled to report later this week. Profit for members of the S&P 500 probably fell 0.9 percent in the first quarter, analysts now forecast, after anticipating a 6.6 percent rise in January. Sales increased 2.6 percent, according to projections.

Consumer discretionary stocks in the S&P 500 added 0.8 percent as a group. Retail sales increased in March as Americans bought more cars, clothing and garden supplies, helping the economy recover from a weather-depressed start to the year. The 1.1 percent advance exceeded the median projection in a Bloomberg survey, Commerce Department figures showed.

While U.S. stocks have tumbled as investors bought companies with stable earnings and dumped Internet and biotechnology shares, it doesn't mean the bull market is over, according to Goldman Sachs.

Stocks tend to recover after similar rotations, with the S&P 500 rising an average 5 percent over the next six months, according to a study by Goldman Sachs on 46 instances of momentum reversals since 1980. Low interest rates and reasonable equity valuations will help prevent the market from crashing like 2000, said strategists led by David Kostin.

"The recent momentum drawdown is unlikely to precipitate a more extensive fall in share prices," they wrote in a note on Friday.

The S&P 500 trades at about 17 times earnings. While that's near the highest level in four years, it's close to the average since 1937, data compiled by Bloomberg and S&P show. since 1937, data compiled by Bloomberg and S&P show.

Hedge funds are saying goodbye to the calm that blanketed U.S. stocks for the past two years. Large speculators have reduced bets on lower volatility and were net short about 1,000 contracts on VIX futures last month, the fewest since 2011, according to a report from the Commodity Futures Trading Commission. The action amounts to speculation equities will keep falling since the Chicago Board Options Exchange Volatility Index moves in the opposite direction of the S&P 500 about 80 percent of the time.

The VIX, a benchmark gauge for equity options, slipped 5.4 percent to 16.11 on Monday.

All 10 S&P 500 main industries climbed. Commodity and technology shares advanced more than 1.1 percent.

Citigroup jumped 4.4 percent to $47.67. The third-biggest U.S. bank reported an unexpected profit increase, beating analysts' estimates. The firm also plans to eliminate at least 4,000 jobs at its global consumer bank by the end of this year, according to a slide show accompanying its results.

Edwards Lifesciences gained 11 percent to $81, the highest in a year. The company won a court order limiting U.S. sales of Medtronic's CoreValve system following a 2010 ruling that the device infringed Edwards patents. Medtronic fell 1.9 percent to $58.08.

Aspen Insurance jumped 11 percent to $43.77. Endurance Specialty, a Bermuda-based provider of property and casualty insurance, announced a $3.2 billion offer after the target company turned down its proposal.

Boston Scientific climbed 4.9 percent to $13.31. The maker of heart-rhythm aids was raised to buy from neutral at Bank of America.

Herbalife jumped 4.4 percent to $53.75, recovering from a 14 percent drop on Friday. The company that hedge fund manager Bill Ackman has accused of being a pyramid scheme is being probed by the Federal Bureau of Investigation.


With assistance from Trista Kelley and Alexis Xydias in London