- Mixed earnings offer scant incentive to push equities higher
- Employment report seen as next ‘catalyst’ for markets
U.S. stocks closed little changed Thursday, as investors looked past increased stimulus by the Bank of England to Friday’s jobs report for clues on the strength of the economy and the Federal Reserve’s next moves.
Mixed corporate earnings offered little direction. Ball Corp. surged the most since 1987 as its profit beat estimates, and Kellogg Co. added 1.7 percent after lifting its outlook. Tempering gains, fertilizer maker CF Industries Holdings Inc. saw its steepest drop in seven years after its results missed analysts’ predictions. MetLife Inc. tumbled 8.7 percent after its quarterly profit disappointed.
The S&P 500 Index rose less than a point to 2,164.25 at 4 p.m. in New York, after weaving narrowly between gains and losses throughout the session. The Dow Jones Industrial Average lost 2.95 points to 18,352.05, and the Nasdaq Composite Index increased 0.1 percent. About 6.4 billion shares traded hands on U.S. exchanges, 9 percent below the three-month average.
“Tomorrow’s employment number is the catalyst for the market,” said Jim Davis, regional investment manager at the Private Client Reserve of US Bank, which oversees $128 billion. “We really need to see some economic growth in order to have more assurance that we’re going to have growing earnings in the second half of the year. The market has been driven by multiple expansion and that’s getting long in the tooth now.”
The S&P 500 has hovered near a record in the past few weeks, and is trading at 18.4 times the projected earnings of its members, close to its highest in more than a decade. A batch of corporate earnings that exceeded expectations and speculation central banks will maintain loose monetary policies have helped underpin equities since the brief tumult that followed Britain’s vote to exit the European Union.
The BOE cut interest rates for the first time since 2009 in a widely anticipated move to cushion the fallout from the Brexit decision. The central bank also plans to expand its balance sheet by $223 billion through the purchase of government and corporate bonds, as well as a lending program for banks. Following those moves, traders pushed out wagers on a Fed rate increase. The first month with at least even odds for a hike is September 2017, compared with June yesterday.
Meanwhile, investors are looking for more tangible progress in the U.S. economy, with recent data including last week’s growth report damping optimism. A report today showed applications for unemployment benefits rose last week to a level that still underscores health in the job market. The Labor Department’s July payrolls data are due Friday, with economists surveyed by Bloomberg predicting 180,000 jobs were added, compared with 287,000 the month before.
Quarterly earnings also remain an influence on sentiment. With more than three-quarters of S&P 500 companies having reported, 78 percent beat profit predictions and 57 percent topped sales forecasts. Analysts have tempered their estimates for a decline in second-quarter net income for index members to 3.2 percent from down 5.4 percent a month ago.
In Thursday’s trading, raw-materials and technology companies were the strongest among the S&P 500’s 10 main groups, while financial and health-care shares lagged the most. The CBOE Volatility Index fell 3.4 percent to 12.42. The measure of market turbulence known as the VIX is near a two-year low and 28 percent below its five-year average.
A Goldman Sachs Group Inc. basket of most shorted stocks rose for the fifth time in six days. The gauge is up 20 percent since the two-day selloff that followed the Brexit vote.
MetLife weighed on the financial group and flipped insurers into the worst performers among 24 S&P 500 industries, after the group posted the best gain yesterday following American International Group Inc.’s earnings. MetLife plans to cut expenses by 11 percent, which will include job reductions, as low interest rates squeeze investment income. Prudential Financial Inc. and Lincoln National Corp. lost more than 4 percent.
Joining Ball Corp. to boost raw-materials shares, WestRock Co. gained 4.2 percent after its profit exceeded analysts’ forecasts. Monsanto Co. rose 2 percent as people familiar with the matter said Bayer AG is examining its financial accounts, a crucial step that could pave the way for Bayer to raise its $55 billion takeover offer.
Tech companies in the benchmark advanced 0.5 percent, with the group closing at the highest level since September 21, 2000. Today’s climb was paced by Facebook Inc.’s 1.5 percent gain, while Microsoft Corp., Intel Corp. and Visa Inc. all added more than 0.7 percent.
Among shares moving on earnings news, TripAdvisor Inc. slumped the most in six months, dropping 8.5 percent. The company’s results missed estimates as its shift into mobile and instant bookings has yet to generate the expected sales uptick.
First Solar Inc. slid 11 percent to a 10-month low as a strategic shift spurred concern about the biggest U.S. solar company’s revenue growth. Chief Executive Officer Mark Widmar has said he expects sales of panels to third parties to be a major source of growth, meaning more competition with Chinese manufacturers.
Realogy Holdings Corp., owner of brokerage brands Coldwell Banker and Century 21, dropped nearly 15 percent to a record low as sluggish luxury home sales hurt the firm’s earnings. SeaWorld Entertainment Inc. tumbled 13 percent, the steepest in two years, after reporting lower theme-park attendance in Orlando, Florida, and cutting its earnings outlook for the year.
Harman International Inc. rallied 7 percent to a three-month high, and Parker Hannifin Corp. gained 4.6 percent, the most since 2014, after the companies’ quarterly profits and sales beat estimates.