U.S. Stocks Slip on Valeant as Oil, Gold Lead Commodities Slump

  • Biotechnology shares resume losses as Valeant targeted
  • Japanese trade data fuels concern over commodity demand

A short-seller takeout of Valeant Pharmaceuticals International Inc. roiled the health-care sector, sending U.S. stocks to a second day of losses amid mixed corporate results. Fresh signs of a slowdown in global growth helped push oil to a three-week low.

After a volatile session, the Standard & Poor’s 500 Index ended Wednesday at a one-week low. Valeant set the tone, with its shares tumbling as much as 40 percent on a report from Citron Research, only to cut the rout in half after billionaire William Ackman added to his stake in the company. The saga overshadowed a largely positive slate of blue-chip earnings. Oil in New York also fell to a three-week low and gold slid the most this month.

Drugmakers have been whipped around the past two months
Drugmakers have been whipped around the past two months

“We were looking for biotech and health-care as a form of leadership to stabilize the market and this news certainly doesn’t help,” said Andrew Burkly, head of institutional portfolio strategy at Oppenheimer & Co. in New York. “That was the component we were missing on the rally and this sets that back.”

Equities have struggled this week to extend a rally that has added more than $4 trillion to the value of global stocks since the end of September. While commodity producers have largely paced that rebound, resource prices slumped Wednesday after a decline in Japanese imports bolstered concern that demand in major economies is ebbing. The allegations against Valeant rekindled selling among biotechnology shares, which have been among the U.S. bull market’s best performers until the last few months.

Stocks

A 0.9 percent drop in the S&P 500 Health Care Sector Index contributed to the broader gauge’s 0.6 percent loss in New York. The index had rebounded almost 9 percent from its summer trough before declining the last two days. The Nasdaq Biotechnology Index slipped 0.5 percent.

Valeant ended Wednesday down 19 percent at its lowest closing price since October 2014 after Citron, a stock commentary firm founded by Andrew Left, published a report examining a specialty pharmacy the company uses to facilitate drug sales to patients. Laval, Canada-based Valeant trimmed the losses after it refuted the report and after it was revealed that Ackman had bought 2 million shares.

The selling spurred a battering in drug stocks that are seen as sharing Valeant’s taste for acquisitions. Mallinckrodt Plc and Endo International Plc tumbled at least 5.6 percent. The ripples spread quickly, dragging down an index of the 25 largest and most liquid U.S. pharmaceutical companies, which tumbled 1.8 percent as 21 of its members fell.

“The market has thrown the baby out with the bathwater,” said David Katz, who oversees about $975 million as chief investment officer at Matrix Asset Advisors Inc. in New York. “The selloff in pharmaceuticals has gotten a little overdone. We’re buyers into the weakness on a case-by-case basis.”

Valeant overshadowed a busy day of earnings and dealmaking.

Boeing Co. jumped 1.7 percent after reporting results, leading a rally among industrial shares. General Motors Co. surged 5.8 percent on its earnings, while poor profit and sales data sent Chipotle Mexican Grill Ltd. and St. Jude Medical Inc. down at least 5.7 percent. KLA-Tencor Corp. jumped 19 percent after Lam Research Corp. agreed to acquire the company for $10.6 billion.

Investors are looking to corporate America to gauge the strength of the economy as the Federal Reserve mulls its first interest-rate increase since 2006. Mixed data in the U.S. and ructions in global financial markets have kept the central bank from tightening and traders continue to bet they’ll hold off until next year.

“Earnings reports have been more good than bad so far, but the real meat of earnings will be in the next two weeks,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “There’s not enough to draw from to make a broad conclusion yet.”

Bonds

Yields on benchmark 10-year Treasuries fell four basis points, or 0.04 percentage point, to 2.03 percent. They have hovered near 2 percent since the start of the month.

A gauge of U.S. sovereign bond market volatility dropped to 71 basis points this week, from 95 basis points as recently as August, on bets the Fed will be sidelined until March.

Rates on German bunds due in a decade dropped by six basis points, or 0.06 percentage point, to 0.57 percent. Similar maturity Japanese notes yielded 0.32 percent, up one basis point.

Commodities

The Bloomberg Commodity Index, a measure of returns on 22 raw materials, fell to the lowest level in more than two weeks, with declines led by coffee and crude oil.

West Texas Intermediate oil fell 2.4 percent to settle at $45.20 a barrel in New York, and Brent ended down 1.8 percent to $47.85 in London. An Energy Information Administration report on Wednesday indicated U.S. crude inventories grew last week.

Gold fell the most this month, with futures for December delivery sliding 0.9 percent to settle at $1,167.10 an ounce. Losses across commodities weighed on the metal amid speculation that inflation will remain slow.

Emerging Nations

A Bloomberg index of 20 emerging-market currencies fell for a fourth day, its longest slide since Sept. 23. Russia’s ruble and the South African rand both weakened more than 1 percent versus the greenback. The ringgit dropped 0.5 percent in a fourth day of losses, with Malaysia Asia’s only major net oil exporter.

The MSCI Emerging Markets Index slipped 0.6 percent, retreating a second day. Brazilian stocks also dropped for a second day, led by oil producer Petroleo Brasileiro SA, amid speculation ongoing political turmoil there will deepen the Latin American nation’s economic recession.

Economic expansion in most emerging markets lagged behind developed nations for the first time in 14 years in the second quarter as a slowdown in world trade, heavy debt burdens and anticipation of the forthcoming increase in U.S. rates sapped growth, according to Citigroup Inc.

Currencies

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.3 percent for a fifth day in the green. The Fed is due to review monetary policy next week in its penultimate meeting for 2015, with odds on a rate increase not breaching 50 percent until the March 2016 meeting, according to futures trading.

The greenback has lost 1.4% to major peers in October
The greenback has lost 1.4% to major peers in October

The Canadian dollar slid 1.2 percent $1.3139 per U.S. dollar, its weakest level in almost three weeks. The loonie fell after the central bank left rates unchanged while cutting its economic growth forecasts, stoking speculation it may need to reduce borrowing costs again in the future.

The euro was little changed at $1.1339 after rising 0.2 percent last session on a report from the European Central Bank. The regulator indicated there has been continued improvement in lending conditions, fueling speculation officials will hold off on extending asset purchases. The ECB meets Thursday to review policy.

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