S&P 500 Snaps Three-Day Rally After Fed Fisher’s Remarks
The Standard & Poor’s 500 Index (SPX) snapped a three-day advance amid disappointing corporate results and after Federal Reserve Bank of Dallas President Richard Fisher said adequate economic stimulus is in place.
McDonald’s Corp. (MCD), the largest restaurant chain, slid 1.8 percent as global sales were unchanged in July. Priceline.com Inc. (PCLN), the biggest U.S. online travel agency by market value, tumbled 16 percent after forecasting earnings that missed projections. Hewlett-Packard Co. (HPQ) rallied 2.6 percent after raising its earnings forecast and appointing a new head for its enterprise services unit as it restructures the business.
About six stocks fell for every five that gained on U.S. exchanges at 2:28 p.m. in New York. The S&P 500 slid 0.1 percent to 1,400.64, after rising 2.7 percent in three days. The Dow Jones Industrial Average dropped 4.24 points, or less than 0.1 percent, to 13,164.36. Trading in S&P 500 companies was down 9.1 percent from the 30-day average at this time of day.
“The market has gotten a bit ahead of itself on speculation of central bank action,” said Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., which has more than $127 billion in client assets. “Even as the U.S. economy is moving at a relatively slow pace, there’s very little evidence that encourages the Fed to come in with another significant round of quantitative easing.”
Equities dropped as the Fed’s Fisher said global central banks may not have the capacity to undertake additional measures. Stocks rose yesterday as Fed Bank of Boston President Eric Rosengren said the central bank should pursue an “open- ended” easing program of “substantial magnitude.”
Investors also watched corporate results. Almost 59 percent of S&P 500 companies which reported second-quarter sales have missed analysts’ estimates, Bloomberg data showed.
The S&P 500 is in a “make-or-break situation” that will probably lead to either large gains or losses for the benchmark U.S. stocks gauge, according to technical analysts at UBS AG.
After climbing through the 1,390 level, the S&P 500 may go on to test the highs reached in March and May, Michael Riesner and Marc Mueller in Zurich wrote in a report dated yesterday. A drop below 1,325 would indicate a retreat to the early-June low of 1,266. That would be a 9.7 percent slide from yesterday’s close of 1,401.35.
Investors should watch the flow of money into so-called defensive stocks, whose earnings are less dependent on economic growth, and cyclicals, which are more tied to the performance of the economy, for signs of future moves in the S&P 500, the analysts said.
“The U.S. market remains in a classic make-or-break situation, where a breakout and a subsequent trend move shouldn’t be too far away,” they wrote. “Either the market is able to start a new momentum impulse -- and for this we would need to see a rotation on the sector basis, from defensives into financials or cyclicals -- or the S&P 500 will very soon get a breadth problem, when defensives are starting to pull back.”
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