US stocks stumbled on Wednesday as nine of the ten S&P 500 sectors finished lower, with Smithfield Foods standing out after a rise of more than 25 per cent on news it would be bought by a Chinese pork producer.
Smithfield Foods jumped 28.4 per cent to $33.35 after the largest US pork producer said it would be bought by China’s Shuanghui International for $4.7bn.
The $34-a-share price represented a 31 per cent premium to the closing price of $25.97 on Tuesday. If completed, the deal would be the largest takeover of a US business by a Chinese company.
The S&P 500, however, fell 0.7 per cent to 1,648.36. Positive US economic data has been balanced against concerns about the Federal Reserve’s talk of reducing quantitative easing.
Late on Wednesday, Moody’s rating agency slashed Alcoa’s credit rating to Baa1, turning about $8.6bn of the aluminium producer’s debt to junk status. Shares in the company fell 1.1 per cent to $8.58 in after-hours trading.
Consumer stocks were among the big losers. McDonald’s shares fell 2.2 per cent to $99.05 after the company’s chief executive said during an investor conference that the wider fast food market would stagnate this year.
Healthcare group Johnson & Johnson lost 2.2 per cent to $85.65, after a rally this year of more than 22 per cent. Pharmaceutical companies were also lower, with Pfizer off 2.5 per cent to $28.28 and Eli Lilly down 1.5 per cent to $53.75.
Consumer group Procter & Gamble fell 2.4 per cent to $78.90, losing much of the price rise which followed announcement that A.G. Lafley would return as chief executive. As a result the shares were just 0.3 per cent ahead of where they stood before his reappointment.
Luxury handbag and fashion brand Michael Kors provided a bright spot, reporting record sales and strong growth in Europe and Japan. Shares in the company rose 3.2 per cent to $63.95.
Facebook shares fell 3.2 per cent to $23.32, exacerbating the slide over the past month, on media reports that the social network’s acquisition negotiations with traffic app Waze had fallen apart.
The utilities and telecoms sectors were the worst performers. The financial sector fared better, as the FDIC’s quarterly banking profile reported that US banks had posted record first-quarter net income of $40.3bn. Goldman Sachs was up 1.4 per cent to $162.87; Morgan Stanley rose 1 per cent to $24.98; Bank of America ticked up 1 per cent to $13.48, and Citigroup added 1 per cent to $52.28.
The Nasdaq Composite Index was off 0.6 per cent to 3,467.52, and the Dow Jones Industrial Average lost 0.7 per cent to 15,302.80.
“It’s a good and bad news situation for the market,” said Viren Chandrasoma, US head of risk and programme trading at Credit Suisse. “You’re finally seeing the housing market and the broad economy do a little bit better, and there’s concern that the Fed is going to stop this easy money policy that it’s had for a while.”
“Anytime someone thinks about [quantitative easing] going away or manifesting itself in rising rates, it’s definitely going to scare the stock market and especially the small-cap stocks,” Mr Chandrasoma said.
The Russell 2000 index of small-cap stocks, which broke above the 1,000 mark for the first time earlier this month, was down 1 per cent to 986.96.
Mortgage Reits started the day sharply lower before recovering in afternoon trading. Armour Residential closed down 0.4 per cent to $5.26 after losing as much as 8.6 per cent during the day’s trading. Javelin Mortgage Investment Corp fell 3 per cent to $15.66 and American Capital Agency close the day almost unchanged at $26.40.
Reits are under pressure as optimal lending conditions become tighter due to increased US Treasury yields.
“I think volatility [in Reits] is here to stay. I think the easy money made in this space by these companies is over,” said Matthew Howlett, director of US equity research at UBS. “The operating environment going forward will be difficult. We think risks will be higher and spreads will ultimately be lower.”
Apple, the biggest company in the Nasdaq index, rose 0.8 per cent to $444.95 after Tim Cook, the company’s chief executive, said it may relax its technology strategy to broaden its products.
Beverage and snacks group PepsiCo fell 1.6 per cent to $81.12 after the company’s chief executive talked down the possibility of an acquisition.
“We don’t need any transformational M&A”, Nooyi told a Sanford Bernstein conference in New York. “We are very happy with the PepsiCo portfolio.”
Shares in casino operator Pinnacle Entertainment dropped 8.2 per cent to $18.92 after the US Federal Trade Commission challenged the company’s proposed $2.8bn takeover of Ameristar Casinos.