Stocks decline on home sales, overseas crises before Fed

NEW YORK – U.S. stocks fell, after the Standard & Poor’s 500 reached a record on July 24, as home sales declined and investors watched overseas crises before this week’s Federal Reserve policy decision.

Cummins Inc. fell 3.6 percent to lead industrial shares lower. AcelRx Pharmaceuticals Inc. tumbled 41 percent after saying it failed to win approval for its pain treatment Zalviso from the Food and Drug Administration. Trulia Inc. jumped 12 percent as Zillow Inc. agreed to purchase the company for $3.5 billion. Family Dollar Stores Inc., a discount store chain, soared 24 percent after Dollar Tree Inc. agreed to buy it.

The Standard & Poor’s 500 Index fell 0.2 percent to 1,974.04 at 12:26 p.m. in New York, trimming an earlier drop of as much as 0.6 percent. The Dow Jones Industrial Average declined 28.70 points, or 0.2 percent, to 16,931.87. Trading in S&P 500 stocks was in line with the 30-day average during this time of day.

“Geopolitical risk has been heightened slightly,” Tom Wirth, a senior investment officer for Chemung Canal Trust Co. in Elmira, N.Y., said in a telephone interview. The firm oversees $1.9 billion. “You tend to get a little nervous prior to some big data that’s to be released and this is a big week for data. The decline is very slight when we think about that we’ve been hitting record after record.”

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Fewer Americans than forecast signed contracts to buy previously owned homes in June, a sign residential real estate is struggling to strengthen. The index of pending home sales declined 1.1 percent from the month before after rising 6 percent in May, figures from the National Association of Realtors showed. The median forecast of 39 economists surveyed by Bloomberg projected sales would rise 0.5 percent.

An S&P index of homebuilder shares dropped 2.4 percent to the lowest level since May.

Overseas crises

Outside the U.S., international pressure mounted on Israel to end its three-week offensive in the Hamas-controlled Gaza Strip, with President Barack Obama and the United Nations Security Council demanding an immediate truce.

In Europe, President Vladimir Putin faces intensifying U.S. and European sanctions aimed at forcing him to help end the separatist war in neighboring Ukraine. The Obama administration said it had satellite photos showing Russia firing across the border at Ukraine forces.

The S&P 500 ended little changed last week as investors weighed corporate earnings. The gauge closed 0.5 percent below its all-time high of 1,987.98 reached July 24. The index has rallied about 7 percent this year, as the economy shows signs of recovering from a 2.9 percent drop in the first quarter amid renewed pledges from the Fed to continue stimulus.

Fed decision

The U.S. central bank announces its next policy decision at the conclusion of a two-day meeting on July 30. Investors will get a reading on second-quarter growth that same day, while the government’s labor report on Aug. 1 may show employers added 231,000 jobs this month.

“Sentiment in the short-term term is a little more cautious,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in an interview. “Markets have gotten a little overbought. It’s another big week of earnings, with the jobs report on Friday.”

The Fed’s Open Market Committee will scale back its monthly asset purchases to $25 billion from $35 billion on July 30, according to economists surveyed by Bloomberg, keeping it on pace to end the program late this year. The policy-making committee last month repeated it’s likely to “reduce the pace of asset purchases in further measured steps” and that it expects interest rates to stay low for a “considerable time” after the bond-buying ends.

Chair Janet Yellen and her fellow policy makers are debating how long to keep interest rates near zero as the U.S. labor market improves and inflation moves closer to the Fed’s 2 percent goal.

Equity valuations

Three rounds of monetary stimulus from the Fed and better than-forecast corporate earnings have driven the S&P 500 up 192 percent from its March 2009 bottom. The S&P 500 is trading at 18.1 times earnings of its members, around the highest valuation for the gauge since 2010.

Goldman Sachs Group Inc. said in a report last week that equities are at risk of a temporary selloff, citing rising bond yields and high valuations for lowering its rating on stocks.

Pfizer Inc., Reynolds American Inc. and American Express Co. are among some 150 S&P 500 companies reporting this week. About 78 percent of U.S. companies that have posted results this season have beaten analysts’ estimates for profit, while 66 percent exceeded sales projections, according to data compiled by Bloomberg.

Profit growth

Quarterly profit growth is poised for the fastest increase in almost three years. Companies in the S&P 500 have reported an 11 percent gain in second-quarter earnings, data compiled by Bloomberg show. Should the pace continue, the gain would exceed all periods since the third quarter of 2011.

The Chicago Board Options Exchange Volatility Index, known as the VIX, rose 3.1 percent to 13.08.

Seven out of the 10 S&P 500 main groups declined as industrial companies dropped the most, losing 0.8 percent.

Cummins slipped 3.6 percent to $144.80 even after the maker of diesel engines raised its full-year revenue forecast. Expectations were “fairly high,” Jefferies Group LLC analysts including Stephen Volkmann wrote in a note.

AcelRx Pharmaceuticals plummeted 41 percent to $6.44. The pharmaceutical company said Zalviso, a pain treatment for adult hospital patients, failed to get approval from the FDA, which has requested additional information on the drug.

Takeover deals

Trulia soared 12 percent to $63.15. Zillow agreed to purchase Trulia for $3.5 billion in an all-stock deal, which will combine the top two most-visited property sites in the U.S. tracked by ComScore Inc.

Trulia shareholders will receive 0.444 shares of Zillow for each share of Trulia, according to a statement today. That’s the equivalent to Zillow offering $70.53 a share for Trulia. Zillow slipped 2.5 percent to $154.95.

Dollar Tree added 2.8 percent to $55.73. Family Dollar surged 24 percent to $75.08. Dollar Tree agreed to buy rival Family Dollar for $74.50 per share. The transaction has been unanimously approved by the boards of both companies and is expected to close by early 2015, the companies said.

Tyson Foods Inc. climbed 3.8 percent to $41.04. The largest U.S. meat producer will sell some of its assets in Latin America for $575 million as it shrinks its foreign operations and focuses on the expansion of its prepared foods segment. JBS’s Pilgrim’s Pride Corp. unit will acquire the Mexican assets while Sao Paulo-based JBS will buy the Brazilian business, Tyson said.

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