U.S. Stock Futures Fluctuate as Valuations Offset Europe Concern

By Nikolaj Gammeltoft and Joanna Ossinger - Oct 3, 2011 6:50 AM GMT+0700

U.S. stock futures were little changed, with the Standard & Poor’s 500 Index erasing a decline of almost 0.6 percent, as concern Europe’s debt crisis will spread was offset by equity valuations close to the lowest in 30 months.

The S&P 500 contract expiring in December dropped 0.1 percent to 1,124.80 at 8:48 a.m. in Tokyo after falling as low as 1,119.50 earlier. Dow Jones Industrial Average futures declined 6 points, or 0.1 percent, to 10,835.

Concern that widening budget deficits will spur defaults and bank losses in Europe sent the MSCI World Index down 17 percent from July through September. Greece’s government approved 6.6 billion euros ($8.8 billion) of austerity measures including firing state workers, to show it can trim its budget deficit enough to secure a second rescue package.

“There’s going to be renewed focus on Europe this week and then people are going to start focusing on the earnings season,” Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc., which oversees $4 billion, said in a telephone interview. “But it’s going to be volatile. We continue to trade on emotion and it’s a macro-driven risk-on, risk-off trade right now.”

Profits for S&P 500 companies are forecast to rise 13.1 percent in the three months ended Sept. 30, the eighth straight quarterly increase, data compiled by Bloomberg show. Alcoa Inc. (AA) gives its report on Oct. 11.

Equity Valuations

The benchmark index for American equities closed last week at 12.4 times profits in the last 12 months, about 1 percent above the lowest valuation since March 2009, data compiled by Bloomberg show. Companies in the benchmark gauge for American equities trade at 10.2 times 2012 forecast earnings, compared with the average in economic contractions since 1957 of 13.7, the data show.

“A lot of large- and mid-cap stocks have been beaten down and valuations are attractive,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a phone interview. “Earnings have been strong and they are high-quality. We think it’s a good time to buy U.S. stocks. Lately Monday mornings have been about what’s come out of Europe over the weekend, so we’ll be looking out for any new developments in the euro zone.”

U.S. stocks fell last week, capping the worst quarterly loss for the Standard & Poor’s 500 Index since the end of 2008, as the sovereign debt crisis in Europe and fears of a global slowdown overshadowed improving economic reports in the U.S.

The S&P 500 declined in nine out of 13 weeks last quarter. For the year, the gauge is down 10 percent. The Dow dropped 12 percent in the quarter and has lost 5.7 percent in 2011.

European Crisis

The S&P 500 slumped as much as 18 percent from its high in April, as European finance chiefs clashed over how to assist Greece and American lawmakers struggled to agree on raising the federal government’s debt limit. The benchmark equity index fell to a low of 1,119.46 on Aug. 8 after S&P cut the country’s credit rating.

Gains in U.S. payrolls in September were probably too small to reduce joblessness and manufacturing almost stalled as concern mounted that the global recovery was losing momentum, economists said before reports this week.

Employment climbed by 50,000 workers after no change in August, according to the median forecast of 67 economists surveyed by Bloomberg News before Labor Department data Oct. 7.

Factories grew at the slowest pace since July 2009, a survey of purchasing managers may show today. The Institute for Supply Management’s factory index fell to 50.3 from 50.6 in August, according to a Bloomberg survey of economists. A reading of 50 is the dividing line between contraction and expansion.

Since August, the benchmark gauge for U.S. equities has traded between about 1,100 and 1,300, as investors weighed positive reports on the world’s largest economy against speculation that the European debt crisis was growing. The index is forecast to reach 1,305 by the end of the year, according to strategists surveyed by Bloomberg.

To contact the reporters on this story: Joanna Ossinger in New York at jossinger@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net