- Fed, BOJ loom later in week as investors assess earnings
- Verizon wins Yahoo auction in $4.8 billion bid for assets
U.S. stocks retreated from records as a tumble in the price of crude sank energy shares with investors looking to central-bank policy decisions later in the week.
The S&P 500 Index fell 0.3 percent to 2,168.47 at 4 p.m. in New York, following a fourth week of gains for the gauge. Trading in stocks in the index was 11 percent below the 30-day average at this time of day. The Dow Jones Industrial Average dropped 78.13 points, or 0.4 percent, to 18,492.72.
“This is a small drop off from the record climb after recovering those losses from Brexit,” said Todd Lowenstein, director of research at Highmark Capital Management Inc. in Monteceito, California. “There’s euphoria from the potential of more central bank easing. Along with higher-than-expected earnings, that led markets higher and now we’ve had a chance to digest those gains and we’re seeing a slight sell-off.”
Earnings remain in focus, with companies including Texas Instruments Inc., Sprint Corp. and Gilead Sciences Inc. scheduled to report earnings Monday. Profits and sales have broadly topped projections so far this season, and analysts have eased their estimates for declines in net income.
Energy shares sank 2 percent for the biggest drop in a month. Chesapeake Energy Corp. and Devon Energy Corp. fell at least 4.4 percent to pace declines. Materials producers also fell, as gains in the dollar damped demand for products denominated in the currency.
Among stocks moving, Yahoo! Inc. lost 2.7 percent and Verizon Communications Inc. slipped after the internet portal agreed to sell its main web business to the wireless carrier. In earnings news, Roper Technologies Inc. fell the most in the S&P 500 after missing profit estimates. Micron Technology Inc. jumped 6 percent after adopting a poison pill takeover defense.
The S&P 500 reached a seventh all-time high in 10 sessions on Friday, after going more than 13 months without a record. The advances came as companies showed signs of breaking a four-quarter-long decline in sales, fueling optimism that a long-awaited rebound in earnings is at hand. Still, further stock gains may be harder to combine, according to Kully Samra, a client manager at Charles Schwab Corp., which has $2.4 trillion in client assets.
“We’ll continue in this bull market, but we are in a mature phase and the argument around valuations has not gone away,” Samra said from London. “Valuations will remain stretched so gains are much harder to make.”
The rally took the S&P 500 up 6.4 percent this year, recovering from the slump after the U.K. vote to quit the European Union. Since its February low, it’s regained 19 percent, taking its valuation to more than 17 times estimated earnings for the next 12 months. Better-than-forecast economic data have lifted odds of a Federal Reserve interest-rate increase, with traders pricing in a 45 percent chance of higher borrowing costs by December, up from just 12 percent at the start of July.
The next Fed rate decision will be on Wednesday, and economists and investors expect no change. Chair Janet Yellen’s approach to policy this year has been to wait for overwhelming evidence, a strategy aimed at nursing the economy through the uncertainties of global shocks while puzzling over head-scratchers that include low productivity and how much support is Fed policy really providing to growth.
“Earnings are the key this week, but there’s also the Fed, the Bank of Japan and the Democratic National Convention, so you have a lot of things that go right or wrong,” said John Canally, chief economic strategist at LPL Financial, which oversees about $479 billion in Boston. “We’ve run the market up to new all-time highs at peak valuations, so we have to hit a home run on earnings to get much higher from here.”