By Adam Haigh
June 28 (Bloomberg) -- U.S. stock-index futures gained, indicating the Standard & Poor’s 500 Index may advance for a second day, as Group of 20 leaders pledged to reduce government deficits while continuing to nurture economic growth.
Transocean, the company that leased the Deepwater Horizon drilling rig in the Gulf of Mexico to BP Plc, rose 3.2 percent after the British oil company reiterated its August timeline for plugging the well. Colgate-Palmolive Co. climbed after Goldman Sachs Group Inc. upgraded its recommendation on the shares to “overweight.”
Futures on the S&P 500 expiring in September advanced 0.2 percent to 1,076.7 as of 8:07 a.m. in New York. Dow Jones Industrial Average futures increased 0.1 percent to 10,115, while Nasdaq-100 Index futures rose 0.2 percent to 1,843.5.
The S&P 500 is poised for a 7.9 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.
The measure remains 3.4 percent lower in 2010, trimming its valuation to about 16 times the reported earnings of its companies, near the lowest level in almost a year.
“The economic cycle is still intact and as such equities are a sensible long-term strategy,” said Noland Carter, chief executive officer at Tunbridge Wells, England-based Heartwood Wealth Management Ltd., which oversees about $1.7 billion. “We are still overweight U.S. stocks.”
Capital Requirements
G-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.
President Barack Obama welcomed the deficit-cutting goal set by the G-20 nations even as he warned against acting too quickly to pull back on measures to stimulate economic growth. Obama also said at the conclusion of summit yesterday that the U.S. will be watching closely as China relaxes its currency policy.
Earnings Upgrades
Equities “will be supported by valuations, monetary policy and earnings upgrades,” Ian Scott, a London-based stocks strategist at Nomura Holdings Inc. wrote in a report sent to investors today.
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.
Consumer Spending
Transocean gained 1.5 percent to $50.53 in pre-market New York trading. BP stood by its timeline for plugging the gusher responsible for the biggest U.S. oil spill on record.
Colgate-Palmolive rose 1.1 percent to $79.87 in German trading. Goldman Sachs upgraded consumer-staple shares to “overweight” from “neutral.” The broker has a “buy” rating on the world’s largest toothpaste-maker.
BorgWarner Inc., the world’s biggest maker of automatic- transmission parts, may rise to as high as $50 during the next year as demand for fuel-efficient and less-polluting vehicles increases, Barron’s reported, citing analysts. The shares advanced 2.2 percent to $40.15.
Barron’s also reported that Auxilium Pharmaceuticals Inc. may fall into the teens if sales of its hand-disorder treatment fall short of estimates. The stocks did not trade in Europe.
--Editors: Michael P. Regan
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.
To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.
From Bloomberg Businessweek published on June 28, 2010, 8:12 AM EDT