U.S. stock futures decline as China cuts economic growth target

U.S. stock futures declined, following a three-week advance for the Standard & Poor's 500 Index, as China cut its economic growth target and a gauge of euro-area services output shrank more than estimated.

Target Corp. and Freeport-McMoRan Copper & Gold Inc. retreated more than 0.9 percent to pace losses among the biggest companies. Zynga Inc., the online-game company that sold shares to the public in December, and CF Industries Holdings Inc., North America's largest maker of nitrogen-based fertilizer, fell at least 1.8 percent after the shares were downgraded.

S&P 500 futures expiring in March lost 0.2 percent to 1,366 at 8:42 a.m. New York time. Dow Jones Industrial Average futures slid 17 points, or 0.1 percent, to 12,951.

“It's just not an environment that we feel like sticking our neck out to take on a lot of risk,” said Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston. “We've been scratching our heads a little bit after the big run-up in equities. We just don't see a strong enough global economic background to support where prices are right now.”

Equity futures joined a global slump as China pared its growth target to 7.5 percent from an 8 percent goal in place since 2005. Euro-area services output shrank more than estimated in February, led by Italy and Spain, as the region's economy struggled to rebound from a contraction in the fourth quarter.

Stocks rose last week as data on housing and the jobs market improved. The S&P 500 fell on March 2 amid concern that a rally that drove the benchmark gauge to the highest level since 2008 has outpaced global growth prospects. It trades at 14.1 times reported earnings, which is the highest since August while still below the average since 1954 of 16.4 times.

Target, Freeport

Some of the largest companies retreated. Target lost 1 percent to $56.02. Freeport declined 0.9 percent to $41.64.

Zynga decreased 2.5 percent to $14.32. The shares were downgraded to “neutral” from “overweight” at JPMorgan Chase & Co. The share-price estimate is $15.

CF Industries fell 1.8 percent to $184.81 after being cut to “neutral” from “buy” at Citigroup Inc. and removed from the firm's “Top Picks Live” list.

Corporate profits that doubled since 2009 have left the S&P 500 cheaper than at all 34 peaks since 1989, even as options traders push the cost of protecting against losses to the highest in four years.

The S&P 500 advanced 102 percent since March 2009 to an almost four-year high last week, data compiled by Bloomberg show. Valuations are lower than at every 52-week peak since 1989. Traders have pushed the price of contracts that pay should the S&P 500 drop 20 percent to the most since 2007 compared with ones betting on a rally of the same size.

Bears Versus Bulls

Rising oil prices and concern European leaders have yet to contain the credit crisis are keeping investors from paying more for profits, which are projected to reach annual records through 2013. Bears say equities aren't cheap because the profit estimates are too optimistic. Bulls say shrinking price-earnings ratios provide a margin of safety should gains in the U.S. economy fail to match forecasts.

“Stocks have just gotten too cheap,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $160 billion. “We were worrying about a Chinese hard landing that didn't happen. We worried about a U.S. double dip and that didn't happen. We worried about Europe disintegrating, that didn't happen. The worst risks have passed.”