S&P 500 Slips From 7-Week High as Industrials, Biotechs Decline

  • Renewed selling in biotechnology drags down health-care
  • Industrial shares sink amid weaker China import data

U.S. stocks declined, with equities slipping from seven-week highs, as industrial shares sank amid weak China imports data and selling picked up in biotechnology stocks.

Equities had lingered for the better part of three days close to levels reached last week, after Federal Reserve meeting minutes showed policy makers were cautious about raising interest rates amid concerns that China’s weakness could spill over. Transportation companies were a drag on industrials Tuesday, while the Nasdaq Biotechnology Index sank to a two-week low.

The Standard & Poor’s 500 Index slipped 0.7 percent to 2,003.69 at 4 p.m in New York, declining for the first time in five sessions. The Dow Jones Industrial Average dropped 49.97 points, or 0.3 percent, to 17,081.89. The Nasdaq Composite Index lost 0.9 percent, while the Russell 2000 Index dropped 1.4 percent, the most in two weeks. About 6.1 billion shares traded hands on U.S. exchanges, 16 percent below the three-month average.

“We’ve had a very, very strong run the first ten days of October,” said Eric Green, director of research and senior managing partner at Penn Capital, which oversees $4 billion in Philadelphia. “Expectations are relatively low for earnings. Expectations for economic data have been set lower around the world. Some backing and filling is probably appropriate here.”

Equities slid in early trading after China’s imports fell for an eleventh month, the longest streak of declines in six years. Concerns about the pace of growth in China, along with uncertainty over the Fed’s policy intentions, sparked a summer rout that wiped as much as $14 trillion from the value of global equities.

U.S. stocks have rebounded since, gaining in nine of the previous 10 sessions and rising 4.4 percent in October, while volatility slumped. The S&P 500 has climbed 7.3 percent from the nadir of an August selloff that sent the benchmark into its first correction in four years.

Earnings Season

JPMorgan Chase & Co. today kicked off a batch of results this week from the biggest banks, with Bank of America Corp. and Wells Fargo & Co. among those reporting tomorrow. Investors are bracing for bad news, with the ratio of puts to calls on the SPDR Financial Select Sector ETF at its highest level since March. Short interest on the exchange-traded fund is almost double its one-year average, according to data compiled by Bloomberg and Markit Ltd.

JPMorgan Chase, the biggest U.S. bank, said third-quarter profit rose 22 percent as the firm cut expenses and had $2.2 billion in tax benefits. Shares fell 0.7 percent after the market closed.

Analysts project profits for S&P 500 members dropped 7.2 percent in the third quarter, with energy and materials companies showing the steepest retreat.

While earnings season will have an increased bearing, investor sentiment will likely continue to hinge on the Fed’s policy path. Traders are now pricing in a 37 percent chance of a rate liftoff in December, down from odds as high as 75 percent before China’s surprise currency devaluation in August, while there’s a 57 percent probability of a March raise, according to data compiled by Bloomberg.

The Chicago Board Options Exchange Volatility Index rose 9.3 percent Tuesday to 17.67, after closing Monday at its lowest since Aug. 19. The measure of market turbulence known as the VIX snapped a stretch of 10 consecutive declines, its longest in six years.

All of the S&P 500’s 10 main industries fell today, with industrial, health-care and energy shares down more than 0.9 percent. Energy sank for a third day, the longest streak in more than a month, as oil wiped out earlier gains. Refiners Tesoro Corp. and Valero Energy Corp. lost more than 3.4 percent.

Ryder Tumbles

Leading industrials lower, Ryder System Inc. slid 9.3 percent, the most in more than three years after cutting its earnings outlook. The rental-trucking company cited fleet management issues, with “a greater than planned number of out-of-service vehicles” during the quarter.

J.B. Hunt Transportation Services Inc. and railroad CSX Corp. slumped at least 2.3 percent. FedEx Corp., operator of the world’s largest cargo airline, decreased 1.9 percent amid the weaker import data from China. The Dow Jones Transportation Average lost 2.2 percent after reaching a seven-week high Monday.

Health-care companies erased an intraday advance as selling returned to biotechnology shares after a two-day respite. Celgene Corp. and Biogen Inc. declined 3.3 percent, while Regeneron Pharmaceuticals Inc. fell 3.6 percent to pare most of a 4.6 percent rally Monday. The Nasdaq Biotech Index lost 3.2 percent.

Democratic presidential hopefuls Hillary Clinton and Bernie Sanders will debate tonight. A tweet last month from Clinton suggesting there may be “price gouging” in the market for prescription drugs sparked a rout that sent biotechs tumbling into a bear market.

Among stocks moving on corporate news, FMC Corp. slumped 3.1 percent after lowering its full-year earnings forecast and saying it would cut as much as 12 percent of its workforce. The pesticide maker followed rivals Monsanto Co. and DuPont Co. facing weaker sales related to the slumping Brazilian real.

Molson Coors Brewing Co. jumped 10 percent to a record after Anheuser-Busch InBev NV said it will pay about $106 billion for SABMiller Plc. Molson Coors could be one of the biggest beneficiaries of the deal because the combined entity will probably offload its stake in MillerCoors, and Molson Coors is the obvious buyer.

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