U.S. Stocks Pare Gains as Syria Concern Offsets Economy

U.S. stocks pared gains, following the worst month since May 2012 for the Standard & Poor's 500 Index, as growing concern about possible military action against Syria overshadowed better-than-forecast economic data.

Microsoft Corp. slipped 5.7 percent after agreeing to buy Nokia Oyj's mobile-phone business and license its patents for 5.44 billion euros ($7.2 billion). Verizon Communications Inc. dropped 2.6 percent after agreeing to buy Vodafone Group Plc's 45 percent stake in Verizon Wireless for $130 billion. CBS Corp. (CBS) jumped 3.9 percent after the broadcaster's programs returned to Time Warner Cable Inc.

The S&P 500 climbed 0.1 percent to 1,633.93 at 2 p.m. in New York, paring an earlier advance of as much as 1.1 percent. The Dow Jones Industrial Average dropped 25.08 points, or 0.2 percent, to 14,785.23, erasing an earlier advance. Trading in S&P 500 stocks was 11 percent above the 30-day average at this time of day. U.S. exchanges were closed yesterday for the Labor Day holiday.

"This bull market continues to go higher and higher. It just feels like the next shoe is going to drop and people are really concerned," Jason Cooper, a portfolio manager who helps oversee $2.5 billion in South Bend, Indiana, at 1st Source Investment Advisors, said in a phone interview. "Any negative news or conflict in Syria, that'd just give bears some fuel to say 'hey, maybe things aren't that great and we need to really buckle down.'"

Stocks pared gains today after Speaker of the House John Boehner said he will support President Barack Obama's call for action against Syria.

Military Response

Use of chemical weapons requires a response and only the U.S. has the capability to "warn others around the world that this type of behavior is not going to be tolerated," Boehner, an Ohio Republican, told reporters after meeting with Obama. "This is something that the United States as a country needs to do," he said.

Obama announced on Aug. 31 that he'd seek support from Congress for a military strike in Syria. The decision came after the president said previously that he had authority to order a military mission in response to what his administration and the French and U.K. governments say was the Syrian regime's Aug. 21 chemical weapons attack on civilians. The president won conditional support yesterday from Republican Senators John McCain and Lindsey Graham.

Syria, Fed

The S&P 500 fell 3.1 percent in August amid concern the Federal Reserve would reduce its monthly bond purchases and the U.S. would take military action against Syria. Better-than-estimated corporate earnings and monetary stimulus from the Fed have driven the index as much as 153 percent from a 12-year low in 2009, with the gauge reaching a record 1,709.67 on Aug. 2.

The Fed holds a policy meeting on Sept. 17-18 to decide whether to slow the pace of its bond-buying program. Chairman Ben S. Bernanke has said that the central bank may reduce its monthly purchases if the employment outlook substantially improves and the economy grows in line with forecasts.

Global stocks rose yesterday as data showed China's manufacturing index increased to a 16-month high in August, while other gauges showed euro-area factory output expanded at a faster pace than initially estimated in August.

Among today's reports, the Institute for Supply Management's manufacturing index increased to 55.7 in August from 55.4 a month earlier, the Tempe, Arizona-based group said. The median forecast of 85 economists surveyed by Bloomberg called for the measure to rise to 52. Another report showed construction spending in the U.S. increased in July to the highest level in four years, propelled by gains in residential real estate.

Microsoft, Verizon

Utilities and phone companies had the biggest declines among 10 S&P 500 industries, dropping at least 1.2 percent. Consumer-discretionary, financial and commodity shares climbed more than 0.4 percent.

Microsoft slid 5.7 percent, the most in the S&P 500, to $31.49. The maker of the Windows operating system will pay 3.79 billion euros for Nokia's devices and 1.65 billion euros for its patents, according to a statement from the companies. Nokia's U.S.-traded shares surged 30 percent to $5.08.

Verizon lost 2.6 percent to $46.13. Verizon will pay Vodafone $58.9 billion in cash, financed with credit, and will issue $60.2 billion in stock to the shareholders of Europe's largest mobile-phone operator, according to a joint statement.

Stocks gained earlier today as the U.S. market is poised for the busiest month of takeovers since October 2012. More than $130 billion of mergers and acquisitions have been announced since the end of August, data compiled by Bloomberg show.

Jarden Corp. jumped 8.9 percent to $46.75. The company agreed to buy Yankee Candle for $1.75 billion, making its biggest acquisition to add the 43-year-old scented candle maker to its collection of more than 120 consumer brands.

'Increased Confidence'

More acquisitions are "indicative of increased confidence in the corporate space in that they view opportunities to take advantage of and feel comfortable using some of their capital to do so." Ethan Anderson, senior portfolio manager at Rehmann Financial in Grand Rapids, Michigan, said in a phone interview. His firm oversees about $1.5 billion.

Citigroup (C) Inc. climbed 2.2 percent to $49.37. The third-biggest U.S. bank by assets has sold more than $6 billion in private-equity and hedge-fund assets in the past month, the Wall Street Journal reported, citing unidentified people familiar with the transactions.

Bank of America Corp. added 0.9 percent to $14.25 after terms obtained by Bloomberg News showed the lender is selling its remaining 2 billion shares in China Construction Bank Corp. for HK$5.63 to HK$5.81 apiece. The second-biggest U.S. lender first invested in Construction Bank in 2005.

Cable Agreement

CBS rose 3.9 percent to $53.07. The broadcaster's programs returned to Time Warner Cable in New York, Los Angeles and Dallas after the companies ended a one-month blackout, in time for the start of National Football League regular-season games.

Time Warner Cable agreed to pay a significant increase for the right to transmit CBS signals, according to people with knowledge of the situation who asked not to be identified because the terms are private. Shares of Time Warner Cable added 1.2 percent to $108.65.

Apple (AAPL) Inc. rose 0.3 percent to $488.50. The world's largest technology company said it will hold a Sept. 10 event, when it's projected to announce new iPhones.

J.C. Penney Co. advanced 1.9 percent to $12.72. Hayman Capital Management LP reported a 5.2 percent passive stake in the department store chain that is seeking to rebound from its worst sales year in more than two decades.

Volatility Predictions

The Chicago Board Options Exchange Volatility Index (VIX), or VIX, jumped 1.8 percent to 17.32 today, after a 26 percent rally in August. Options strategists from JPMorgan Chase & Co. to Weeden & Co. are predicting that U.S. equity volatility will extend its increase in September after posting its biggest monthly advance in more than a year.

JPMorgan said in an Aug. 29 note that volatility is likely to increase in September and October, and recommended buying puts on global stocks gauges including the S&P 500. Weeden told investors to implement a bearish strategy using October contracts on a security tracking the Russell 2000 Index. The VIX has fallen every September in years when volatility was below its historical average at the start of the month, data since 1996 compiled by Bloomberg show.

"There are a number of catalysts that could drive volatility higher in September such as an escalation in the Syrian crisis, further deterioration in emerging markets, or larger-than-expected tapering by the Fed," Mandy Xu, a New York-based equity-derivatives strategist at Credit Suisse Group AG, said in an Aug. 29 interview.