U.S. Stocks Decline as Energy Rebound Fades

  • Allergan, Pfizer slip after announcing $160 billion merger
  • Electronic Arts, Apple declines weigh on technology group

U.S. stocks slipped following the Standard & Poor’s 500 Index’s best weekly rally this year, as gains in consumer companies were overshadowed by a retreat in Allergan Plc and Pfizer Inc. amid their record $160 billion merger deal.

Allergan and Pfizer slipped more than 2.6 percent. Electronic Arts Inc. fell 4.8 percent as GameStop Inc. said sales of the video-game maker’s Star Wars: Battlefront were weaker than expected. Tyson Foods Inc. gained 10 percent after boosting its dividend and its profit outlook was better than some analysts expected. Kellogg Co. rallied the most in almost a year after an analyst upgrade.

The S&P 500 fell 0.1 percent to 2,086.59 at 4 p.m. in New York, after rising 3.3 percent last week, the most since December. The Dow Jones Industrial Average lost 31.13 points, or 0.2 percent, to 17,792.68. The Nasdaq Composite Index declined 0.1 percent. The Russell 2000 Index increased 0.4 percent, bolstered by gains in health-care and consumer discretionary shares. About 6.2 billion shares traded hands on U.S. exchanges 17 percent below the three-month average.

“There are more reasons than usual to sit on your hands during Thanksgiving week,” said Matt Maley, an equity strategist at Miller Tabak & Co LLC in New York. “It’s a combination of a lack of positive reaction in the oil market to help oil rally and concerns a little bit about Brussels. With stuff going on in Europe, people are asking, ‘Do I really need to step to the plate after a 3 percent rally last week?’”

Stocks earlier extended declines as concerns over terrorism intensified after AFP reported an explosive belt was found in a trash bin in a Paris suburb. The search for a key suspect in the Paris terror attacks kept Brussels in an unprecedented lockdown that brought business to a standstill.

The main U.S. equity gauge surged last week after Federal Reserve officials signaled the economy is strong enough to withstand the first rate increase since 2006, and investors grew more comfortable with the notion that borrowing costs may soon be higher. Stocks have gained in seven of the past eight weeks, boosted by raw-material, industrial and technology shares, taking the S&P 500 to within 2 percent of a record set in May.

San Francisco Fed President John Williams said on Saturday there’s a “strong case” for a rate increase in December assuming U.S. economic data continues to be encouraging. Fed Governor Daniel Tarullo said today in an interview on Bloomberg Television economic data received since the central bank met in September had been mixed, as continued low inflation tempered his enthusiasm over progress made this year in lowering unemployment.

“As always with the Fed, we see Fed governors speak on both sides,” said Tim Ghriskey, who helps oversee $1.5 billion as managing director and chief investment officer at Solaris Asset Management. “It’s a way for them to calm the markets and get the markets used to any potential outcome. Eventually the Fed’s going to raise and it’s very likely to be somewhere in the near-term.”

Home Sales

A report today showed sales of previously owned homes retreated in October from the second-highest level since 2007 as lean inventory limited momentum in residential real estate. Recent data have bolstered the case for raising borrowing costs for the first time since 2006, with traders now pricing in a 72 percent probability that the Fed will move next month. The Commerce Department’s second reading on gross domestic product for the third quarter is due tomorrow.

The earnings season is drawing to a close, with almost all companies in the S&P 500 having reported. Of those, 75 percent beat earnings estimates, while only 44 percent exceeded sales forecasts. Analysts project profits for index members dropped 3.8 percent in the third quarter, compared with for a 7.2 percent decline at the start of the season.

Six of the S&P 500’s 10 main industries declined Monday, led by utilities, phone and technology companies. Consumer-staples and commodity shares rose the most. The Chicago Board Options Exchange Volatility Index climbed 1 percent to 15.62. The measure of market turbulence know as the VIX slid 23 percent last week, the most since July.

Technology shares were the biggest drag on the S&P 500. Hewlett-Packard Enterprises Co., the corporate technology business recently separated from the printer and PC operation that’s now HP Inc., fell 2.5 percent following a 7.3 percent jump over the three previous sessions. Maxim Group started coverage of the company today with a hold rating. Hewlett-Packard and HP report results tomorrow after the market closes.

Tech Weighs

Apple Inc. sank 1.3 percent, its first drop in four days. Video-game maker Electronic Arts Inc. fell 4.8 percent, as demand for “Star Wars Battlefront” fell short of expectations. Analog Devices Inc. slumped 4.4 percent, leading semiconductors lower before its quarterly earnings report tomorrow morning.

GameStop Corp. slid 4.2 percent, after falling more than 15 percent earlier. The company reported third-quarter earnings and sales Monday that missed analysts estimates.

Transportation stocks fell, with the Dow Jones Transportation Average declining for the first time in six days, down 0.9 percent. A group of railroad companies tumbled 2.1 percent, the most in almost a month, with all four members slipping more than 1.8 percent.

Raw-material stocks rose today, led by a 4.4 percent rally in Alcoa Inc. Billionaire Paul Singer’s Elliott Management Corp. announced it bought a stake in the largest U.S. aluminum producer, an endorsement of Alcoa’s plans to split into two companies. CF Industries Holdings Inc. gained 2.5 percent after the company said it’s committed to acquiring fertilizer assets from OCI NV.

Tyson Surges

Tyson Foods’ surge led the 0.8 percent gain for consumer-staples shares. Kellogg Co. jumped 3.5 percent, the most in almost a year, after Credit Suisse Group AG raised its recommendation to outperform from neutral. Constellation Brands Inc. and Archer-Daniels-Midland Co. also advanced more than 2.4 percent.

Energy stocks advanced as oil prices swung between gains and losses. Cimarex Energy Co., Tesoro Corp. and Anadarko Petroleum Corp. rose at least 2.7 percent, while Chevron Corp. added 1.1 percent. The group is rebounding after a two-day, 2.3 percent retreat. Oil fluctuated on Saudi Arabia’s repeated pledge to work with OPEC and other producers to stabilize global crude markets. The December crude futures contract expired Friday after falling to the lowest since Aug. 26.

Retailers in the benchmark increased for the fifth time in six days, extending gains after their best weekly climb in almost four years. Macy’s Inc. and Nordstrom Inc., which earlier this month had their worst weekly selloffs since 2008, rose more than 1.4 percent. Amazon.com Inc. added 1.6 percent to close at an all-time high.

Biotechnology companies rose amid Allergan’s combination with Pfizer. Biogen Inc. and Amgen Inc. climbed more than 1.4 percent to lead the Nasdaq Biotechnology Index’s 0.7 percent increase, with the gauge rising for the first time in three sessions. Mallinckrodt Plc surged 8.4 percent after posting earnings that topped estimates.

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