U.S. Stocks Slip, Nasdaq Composite Edges Closer to Bear Market

Goldman Exits Five of Six Top Trading Recommendations
  • Markets whipsaw as tech leads swings between gains, losses
  • Raw-materials rally, energy shares fall with crude oil

U.S. stocks slipped, with the Standard & Poor’s 500 Index holding near its lowest since April 2014 while the Nasdaq Composite Index edged closer to a bear market amid declines in energy and technology shares.

Equity markets are attempting to stabilize after the Nasdaq Composite’s worst three-day selloff since August, and an early drop Tuesday that brought it within 1 percent of a bear market. Whipsaw moves in technology, consumer, health-care and industrial companies sent stocks careening between gains and losses throughout the session. Raw-material companies rallied amid weakness in the dollar, while energy sank with oil prices.

The S&P 500 declined 0.1 percent to 1,852.21 at 4 p.m. in New York, after erasing an early 1 percent loss and climbing as much as 0.8 percent. The Nasdaq Composite Index fell 0.4 percent after lurching between gains and losses. The Dow Jones Industrial Average swung more than 255 points from session low to the high before closing down 12.67 points, or 0.1 percent, at 16,014.38. About 10 billion shares traded hands on U.S. exchanges, 26 percent above the three-month average.

“It’s quite a tussle between the bulls and bears,” said John Carey, a Boston-based fund manager at Pioneer Investment Management Inc., which oversees about $230 billion. “Some people think this is a temporary setback and that the market maybe got a little ahead of itself -- that nothing is really wrong with the economy and this is a good buying opportunity. Others think the market is indicating a slowdown in months ahead.”

Speculation that Deutsche Bank AG is considering buying back billions of its bonds fueled an afternoon rebound in equities. Deutsche Bank’s U.S.-listed shares trimmed declines of more than 4 percent after the Financial Times report on the bond repurchase. The bank’s perceived creditworthiness and a fresh rout in crude added to doubts about the strength of the worldwide economy.

Declines in banks and technology stocks have weighed on U.S. equities in the market’s latest rout, the worst for the Nasdaq Composite since August. The gauge briefly rebounded today after approaching a bear market before closing lower, down about 18 percent since its record last July.

As global stocks near a bear market, volatility is on the rise. The Chicago Board Options Exchange Volatility Index rose 2.1 percent to 26.54, trimming an earlier 9 percent gain when it briefly touched a five-month high. The measure of market turbulence known as the VIX jumped 20 percent in the prior three days.

Among the S&P 500’s 10 main industries, energy was hit hardest, falling 2.5 percent. Phone companies lost 1.1 percent. Tech shares slipped 0.4 percent, after erasing a 1.3 percent drop to rise by the same amount. Raw-materials, consumer staples and health-care rose at least 0.6 percent.

Energy Falls

Oneok Inc. sank 11 percent, taking its two-day drop to 19 percent. Chevron Corp. tumbled 3.6 percent, while Southwestern Energy Co. and Consol Energy Inc. fell at least 10 percent. West Texas Intermediate crude futures settled at $27.94 a barrel, down 5.9 percent.

“Oil is still very much in the picture, and it’s injecting concern about the financial viability of companies in the industry,” said Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates Inc. in Bethlehem, Pennsylvania. “That’s spreading to banks given their exposure to loans within the sector. Credit sensitivity is more at the forefront than it has been.”

International Business Machines Corp. declined 2.3 percent, and Oracle Corp. sank 1.5 percent to help drag the tech group lower. Facebook Inc. and Google parent Alphabet Inc. finished little changed after roaming between both gains and losses of at least 2.2 percent.

A gauge of lenders in the S&P 500 has plunged more than 25 percent since a July peak to its lowest level since October 2013 as bearish sentiment intensified this month. Nine of the 17 members of the S&P 500 Banks Index have lost at least 20 percent just this year.

Materials, Health-Care

Raw-materials were led higher by Martin Marietta Materials Inc., which rose 9.4 percent, after forecasting that its shipments of crushed stone, sand and gravel will rise as much as 7 percent, helping alleviate investor concerns over a construction slowdown. DuPont Co. gained 1.6 percent.

Health-care shares shook off early losses to rise for the first time in four days. Gilead Sciences Inc. gained 2.3 percent, overcoming a 1.4 percent drop at the open, while Pfizer Inc. increased 1.9 percent, erasing a 0.8 percent loss earlier. Boston Scientific Corp. rallied 5 percent, the most in three months. Its Watchman device, used to reduce the risk of stroke, will be covered by Medicare in a reversal of a U.S. proposal last year.

Honeywell International Inc. rose 1.2 percent, after falling as much as 1.3 percent, to pace gains among industrials. Transportation companies helped bolster the group, with Union Pacific Corp. and Delta Air Lines Inc. up more than 1.4 percent, shaking off declines of at least 1.3 percent. The Dow Jones Transportation Average increased 1 percent. Masco Corp. gained 8.2 percent after the building products maker’s quarterly profit beat estimates.

Amid growing concern over China, volatile oil prices and the trajectory of U.S. interest rates, all 24 developed-market indexes tracked by Bloomberg worldwide are down in 2016. Some strategists are losing their resolve in keeping bullish calls on the S&P 500, and have trimmed their year-end projections. The average estimate calls for the benchmark to end December at 2,168 -- a 17 percent rally from yesterday’s close, but a gain of just 6.1 percent for the year.

While the S&P 500’s valuation of 15.4 times the forecast earnings of its members is in line with the average of the past five years, the measure has plunged 13 percent since the start of the year and is at the lowest level since October 2014. The gauge remains more expensive than developed markets in Europe, where the Stoxx 600 Index trades for 13.8 times estimated earnings. That’s down from a record valuation of 17.4 times notched in June.

Investors have been on guard for any signs of weakness spilling over from China while scrutinizing mixed signals from economic reports and corporate earnings. Federal Reserve Chair Janet Yellen is scheduled to testify before Congress on monetary policy tomorrow and Thursday.

Data today showed job openings in climbed in December to the second-highest level on record, a sign demand for labor remains strong. A separate measure showed wholesale inventories in December fell less than economists forecast.

With the onset of the latest bout of financial market turbulence, investors have further cut the probability they see of interest-rate increases, pricing virtually no chance of the Fed raising borrowing costs in March and 4 percent odds in April, down from 17 percent on Friday.

With the U.S. reporting season more than half way through, about 77 percent of S&P 500 members have so far topped profit estimates, while less than half have beaten sales projections. Analysts estimate earnings at companies in the gauge fell 4.5 percent in the fourth quarter, and will drop another 6.3 percent in the current period.

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