By Chuck Mikolajczak
NEW YORK (Reuters) - U.S. stocks were flat in early trading Monday as gains in drugmaker Merck were offset by investor concern over valuations.
Investor concern may be increasing as stocks have become expensive, with the S&P above the mean forward price-to-earnings ratio and at its highest level in nearly seven years. The benchmark S&P 500 surged almost 30 percent in 2013.
According to Thomson Reuters data, fourth-quarter earnings are expected to grow 7.3 percent over the year-ago period. However, the 9.8 ratio of negative guidance to positive outlooks is currently the largest on record.
"It may be that people are speculating that is it is not going to be a very good season at this point," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.
"The last three earnings seasons, people have been questioning how much more earnings improvement can we get without revenue improvement, and it may be that is finally catching up with companies."
Gains in Merck, up 2.9 percent to $51.33, the biggest boost to both the Dow and S&P 500, helped limit declines. A preliminary review by the U.S. Food and Drug Administration said the company's experimental blood clot-preventing drug vorapaxar should be approved. In addition, the drugmaker said it is pursuing strategic options for its animal health and consumer businesses and expects to complete any action it takes this year.
Earnings are expected from 29 companies in the S&P 500 this week, including banks such as Morgan Stanley , Citigroup Inc , Goldman Sachs and JPMorgan Chase & Co .
Results are also due from First Horizon National Corp , M&T Bank Corp , People's United Financial Inc and Charles Schwab Corp .
The Dow Jones industrial average rose 3.54 points or 0.02 percent, to 16,440.59, the S&P 500 <.SPX> lost 0.01 points or -0 percent, to 1,842.36 and the Nasdaq Composite added 1.591 points or 0.04 percent, to 4,176.255.
Equities have started 2014 on a lackluster note, dipping 0.3 percent through the first seven trading sessions as market participants try to gauge the pace of the winding down of market-friendly economic stimulus by the Federal Reserve.
Beam Inc jumped 24.2 percent to $83.16 after the company agreed to be acquired by Suntory Holdings Limited for $16 billion, including debt, making the Japanese company the world's third-largest maker of distilled drinks.
A string of companies tumbled after forecasting earnings.
Lululemon Athletica Inc fell 16 percent to $50.07 after the yogawear retailer cut its forecast for the fourth-quarter due to weak sales in January.
Sodastream International slumped 21.2 percent to $39.30 after the home beverage system maker after its 2013 outlook. Apparel retailer Express Inc lost 3.2 percent to $18.41 after it lowered its fourth-quarter outlook.
But Wendy's outlook was a bright spot, sending shares up 8.3 percent to $9.14 after the fast-food restaurant chain estimated adjusted quarterly earnings above analysts' expectations, as expenses fell due to franchising many company-owned outlets.
British engineering firm Amec said it had provisionally agreed to buy Foster Wheeler in a cash and share deal that values the Swiss-based engineer at 1.9 billion pounds. Foster Wheeler shares added 1.3 percent to $31.86.
(Editing by Bernadette Baum and Nick Zieminski)