Rally in U.S. Stocks Stalls Amid Earnings, Odds for Higher Rates

  • S&P 500 remains on track for best monthly advance since 2011
  • Semiconductor shares retreat, weighing on technology group

A rally in U.S. stocks stalled Thursday, after equities reached a two-month high, as investors weighed corporate earnings and prospects for higher interest rates this year.

Technology shares fell, led by F5 Networks Inc. after its profit and sales outlook disappointed. NXP Semiconductors NV tumbled the most in five years after predicting a drop in sales, and Intel Corp. slid 2 percent. Delphi Automotive Plc sank 7.1 percent after cutting its revenue and earnings forecast. Allergan Plc. climbed 6 percent after confirming it’s in merger talks with Pfizer Inc., which fell 1.9 percent.

The Standard & Poor’s 500 Index was little changed at 2,089.41 at 4 p.m. in New York, near the highest level since Aug. 18. The gauge is up 8.8 percent in October, poised for its best month in four years, boosted by gains in commodity producers and technology shares. The Dow Jones Industrial Average fell 23.72 points, or 0.1 percent, to 17,755.80. The Nasdaq Composite Index declined 0.4 percent, while the Russell 2000 Index slipped 1.1 percent following its best one-day gain this year.

“It’s merely a re-evaluation of how people should be positioned given the Fed commentary yesterday,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “The door was left open for a rate hike in December, which is likely to lead to a much higher dollar. That won’t be a good read for anyone doing business internationally.”

Fed officials yesterday forecast moderate growth, and dropped a reference to global risks in a policy statement following a two-day meeting. They also referred to their “next meeting” on Dec. 15-16 as they discussed the timing for raising interest rates. Traders are now pricing in a 50 percent chance of liftoff in December, compared with as low as 30 percent last week. Prior to the Fed meeting, March was the first month showing at least even odds for a rate increase.

Data continues to be the Fed’s guide toward an eventual rate boost, and a report today showed the economy expanded at a slower pace in the third quarter as companies took advantage of gains in consumer and business spending to reduce bloated stockpiles. A separate measure showed contract signings to purchase previously owned homes unexpectedly fell in September by the most since the end of 2013, indicating the residential real estate market is cooling from its recent brisk pace.

October Rally

The S&P 500 has rebounded as much as 12 percent from an August low. The October rally has been spurred by advances in energy and raw-material shares, the same groups that helped drag the index to its worst quarter since 2011. Both are headed for their strongest monthly increase since 2011 amid easing concern that weakness in China will spread.

“More people want to get into energy and get into the space, they just don’t know what the right time will be,” Adam Lustig, a managing director at Raymond James & Associates Inc. said by phone. “Not many think 2016 will be good for the space but they think 2017 will and we’re starting to see people initiate early.”

Corporate earnings season remains an influence on investor sentiment, with a little less than half of the companies in the S&P 500 yet to report. Of those that have reported, 76 percent beat profit projections, while 56 percent missed sales estimates. Chevron Corp., Exxon Mobil Corp. and Colgate-Palmolive Co. are among 21 companies scheduled to release results on Friday.

The Chicago Board Options Exchange Volatility Index rose 2 percent Thursday to 14.61. The measure of market turbulence know as the VIX is on course for its steepest monthly retreat ever amid equities’ strong rebound from the weak third quarter. About 7 billion shares traded hands on U.S. exchanges, 5 percent below the three-month average.

Five of the S&P 500’s 10 main industries declined today, with utilities, financial and technology shares down the most. Health-care advanced for a fifth day while energy companies climbed for a second straight session.

Semiconductors Drag

Chipmakers dragged down the tech group, with the Philadelphia Stock Exchange Semiconductor Index posting its biggest loss in almost two months. NXP Semiconductors lost nearly 20 percent after forecasting an unexpected decline in fourth-quarter revenue as customers pulled back on orders amid a slowing global economy and higher inventories of unsold chips. Avago Technologies Ltd. slid 5.5 percent.

Earnings results took a toll on auto-parts suppliers. Delphi Automotive fell the most in four years after cutting it annual profit and sales forecasts to below analysts’ estimates as China’s vehicle market slows. The company got about 23 percent of sales last year from the Asia-Pacific region, up from 16 percent in 2010. BorgWarner Inc. lost 8.7 percent after reducing the high end of this year’s profit outlook.

Financial shares in the benchmark retreated after rallying Wednesday the most in seven weeks. Invesco Ltd. dropped 2.5 percent after the owner of the PowerShares funds posted a profit that missed analysts’ estimates, and the firm had $6.3 billion in redemptions. Within the KBW Bank Index, New York Community Bancorp tumbled 12 percent, the most in six years, after agreeing to purchase Astoria Financial Corp. in a deal valued at about $2 billion. Astoria sank 7.7 percent.

An S&P index of homebuilders had its worst drop in a month after the surprise slide in pending sales of previously owned homes. Lennar Corp. and D.R. Horton Inc. slumped more than 3.7 percent. Meritage Homes Corp. fell 9.7 percent as its fourth-quarter outlook disappointed.

Allergan helped lead health-care higher amid its “preliminary friendly discussions” to merge with Pfizer. Vertex Pharmaceuticals Inc. added 5.1 percent after posting a third-quarter loss that was smaller than analysts’ estimates as sales of its new combination drug for cystic fibrosis grew faster than expected.

The Nasdaq Biotechnology Index erased an early climb, halting its longest rally in almost three months. Zimmer Biomet Holdings Inc. added 7.2 percent to a two-month high after raising its 2015 profit outlook and reinstating a stock buyback program.

Energy companies advanced as they head toward an October increase of more than 10 percent, the biggest monthly rally since 2011. The climb since September has been bolstered by Newfield Exploration Co., Apache Corp. and Transocean Ltd., with each up at least 18 percent. Thursday’s gains were paced by Anadarko Petroleum Corp. and Valero Energy Corp., rising more than 3.1 percent.

Hanesbrands, GoPro

Among other companies moving on corporate news, Hanesbrands Inc. jumped 15 percent, its biggest since 2009. The clothing maker posted third-quarter profit that topped analysts’ estimates and raising its earnings forecast for the year, helped by increasing sales of activewear.

Buffalo Wild Wings Inc. plunged 17 percent, the in eight years, after sales growth missed analysts’ estimates and the chicken-wing chain cut its profit forecast.

GoPro Inc. plummeted 15 percent to the lowest since it debuted last year, after the maker of action cameras reported profit and sales that trailed estimates. The company said the smaller Hero4 Session model introduced in July didn’t sell as well as it expected in the third quarter and its September price cut hurt revenue.

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