U.S. stocks fell, after the best Standard & Poor’s 500 Index rally since April, as concern tension in Ukraine could lead to deeper sanctions against Russia kept investors on the sidelines before major earnings reports.
Herbalife Inc. sank 11 percent as hedge-fund manager Bill Ackman vowed to reveal fraud at the company. Yum! Brands Inc. dropped 4.3 percent and McDonald’s Corp. lost 1.5 percent after the two halted buying meat products from a Shanghai supplier under investigation. Hasbro Inc. fell 2.7 percent after reporting revenue that missed analysts’ estimates. BB&T Corp. slid 4 percent as adjusted profit fell short of targets.
The S&P 500 lost 0.2 percent to 1,973.63 at 4 p.m. in New York, paring a loss of as much as 0.6 percent. The Dow Jones Industrial Average dropped 48.45 points, or 0.3 percent, to 17,051.73 after losing almost 126 points this morning. Trading in S&P 500 stocks was 6 percent below the 30-day average.
“The geopolitical situation is an overarching damper on the market and underneath that this week we’re right in the heart of second quarter earnings,” Matthew Kaufler, manager of Federated Investor Inc.’s Clover Value Fund, said in an interview. “While the market is net focused on earnings, we’re still trying to keep a pulse on what’s going on around the world.”
A total of 10 S&P 500 companies are reporting earnings today, including Chipotle Mexican Grill Inc., Netflix Inc. and Botox-maker Allergan Inc. Some 145 companies in the gauge report this week. Apple Inc., McDonald’s Corp. and Coca-Cola Co. are schedule to report results tomorrow.
The S&P 500 rallied 1 percent on July 18, rebounding from its biggest loss since April 10 that came after the downing of a Malaysian Airlines passenger jet in Ukraine and the Israeli ground invasion of the Gaza Strip.
The index pared losses today after President Barack Obama said he prefers a diplomatic solution to the hostilities in Ukraine and Malaysia’s prime minister said rebels in eastern Ukraine agreed to hand over bodies of crash victims and grant access to the crash site.
Obama added that Russian President Vladimir Putin has “direct responsibility” to compel separatists in Ukraine to let international investigators recover remains and collect evidence from the crash site.
“The burden is now on Russia,” Obama said. “Russia will only further isolate itself from the international community” and costs will “only increase” if it doesn’t get separatists to cooperate.
The administration is pushing European governments to expand sanctions against Russia, even at some peril to their own economies, in an effort to break Putin’s support for the pro-Russian rebels. Putin has defied rising international anger over the downing of the airliner, suggesting leaders in the U.S. and Europe were using the incident for “selfish political gains.”
“If Obama had said something concerning further sanctions then there would’ve been some fundamental bite, but there was nothing to it,” Matt Maley, equity strategist at Boston-based Miller Tabak & Co LLC, said in a phone interview. “The market is looking for something to have real impact, something concrete like a cut-off in oil supply or more sanctions.”
In the Middle East, diplomatic efforts to end two weeks of Gaza Strip fighting intensified after battles killed dozens of Palestinians and 13 Israeli soldiers in the conflict’s bloodiest single day.
The S&P 500 ended last week up 0.5 percent, rallying on the final day after better-than-estimated sales at Google Inc., the world’s third-largest company, spurred a rebound in shares.
The equities benchmark has advanced almost 7 percent this year amid better-than-estimated corporate earnings and central bank stimulus as the U.S. economy shows signs of recovering from a 2.9 percent contraction in the first quarter.
The gauge closed at a record 1,985.44 on July 3 and trades at 18.3 times reported earnings, near the highest level in four years. The index has not had a drop of more than 10 percent since 2011.
“People are naturally cautious against these geopolitical events and the market having had such a strong rally,” said Patrick Spencer, the London-based head of equity sales at Robert W. Baird & Co., which oversees more than $100 billion. “Markets are nervous given we haven’t had a correction yet so people are thinking we’re overdue. People are just looking for reasons for the market to sell off.”
The Chicago Board Options Exchange Volatility Index jumped 6.2 percent to 12.81. The gauge known as the VIX was little changed last week despite a 32 percent jump on July 17, the biggest one-day rally in 15 months.
About 76 percent of S&P 500 companies that have posted results this season have beaten analysts’ estimates for profit, while 69 percent exceeded sales projections, according to data compiled by Bloomberg.
Earnings at the index’s members probably rose 6.2 percent in the second quarter, while sales gained 3.3 percent, according to analyst estimates compiled by Bloomberg.
Nine of the 10 main groups in the gauge retreated today, with indexes of health-care and consumer stocks dropping at least 0.4 percent to pace declines. General Electric Co. sank 1.8 percent for the steepest slide in the Dow.
Herbalife shares fell the most in three months, losing 11 percent to $54.02, after billionaire Bill Ackman vowed to show Enron Corp.-like fraud at the seller of supplements and weight-loss shakes. Ackman, head of Pershing Square Capital Management LP, said his firm has devoted $50 million of investors’ money to prove that Herbalife is a pyramid scheme. The results of the investigation will be released in New York tomorrow, Ackman said in an interview on Bloomberg Television.
Herbalife responded to the statements today on Twitter, saying it was confident in the integrity of the company and that “the truth will prevail.”
“Ackman’s theatrics are increasingly desperate,” the company said through its HerbalifeTruth account. Herbalife “is proud of role that nutrition clubs play in helping people lose weight and stay healthy.”
Hasbro lost 2.7 percent to $51.78. The toys and game maker reported second-quarter revenue that fell short of estimates. Rival Mattel Inc. last week said earnings and sales fell short of forecasts.
BB&T Corp. sank 4 percent to $37.33. North Carolina’s second-largest bank reported profit that missed estimates and disclosed that the U.S. Department of Housing and Urban Development is auditing its originations of government-backed loans.
Yum Brands fell 4.3 percent and McDonald’s dropped 1.5 percent. Shanghai Husi Food Co. is being investigated on allegations it sold chicken and beef past its expiration date. Yum said that would result in shortages of some menu items.
Allergan Inc. jumped 2.2 percent to $171.14. The maker of the Botox wrinkle remover said it will cut 1,500 jobs as it tries to fend off a hostile takeover from Valeant Pharmaceuticals International Inc. The company also reported adjusted profit that topped analysts’ estimates.
EMC Corp. climbed 5 percent to $28.33. Elliott Management Corp. has amassed an active stake of more than $1 billion in EMC and is pushing the world’s biggest maker of storage computers to spin off its VMware Inc. unit, a person familiar with the matter said.