S&P 500 Closes Little Changed Amid Biotech Selloff, Nike Rally

  • Reversal in equities sparked by steep declines in health-care
  • Biotechnology shares post the worst weekly drop since 2011

Can Central Banks Handle Global Economic Pressure?

The Standard & Poor’s 500 Index closed little changed, with the benchmark declining for a second straight week, as a selloff in biotechnology stocks thwarted a rally led by Nike Inc.

A rebound in U.S. stocks, fueled by reassuring statements from Federal Reserve Chair Janet Yellen and Nike’s better-then-expected earnings, was eventually undermined Friday by a snowballing drop in biotechs. The Nasdaq Biotechnology Index fell into a bear market amid its worst weekly decline in four years. Banks, meanwhile, had their best day in more than two weeks, rising along with bond yields.

The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,931.34 at 4 p.m. in New York, after erasing an earlier 1.1 percent climb.The Nasdaq Composite Index lost 1 percent, wiping out a 1.1 percent advance. The Dow Jones Industrial Average gained 113.35 points, or 0.7 percent, to 16,314.67, supported by gains in Nike and JPMorgan Chase & Co.

“Health-care was kind of the stalwart and we’re starting to see cracks in leaders,” said Channing Smith, a managing director at Capital Advisors Inc. in Tulsa, Oklahoma. The firm oversees about $1.6 billion. “When you see that, it’s one more reason to step back and be cautious.”

Equities were initially boosted after Federal Reserve Chair Janet Yellen said in a speech following the close of markets yesterday that the central bank is on course to raise interest rates this year. Yellen’s remarks bolstered confidence the economy is sturdy enough to handle higher borrowing costs. She acknowledged that economic “surprises” could lead policy makers to change that plan.

The Fed held its fire on a rate increase last Thursday, saying it’s considering spillover risks to the U.S. economy from turmoil in global markets. That sparked declines in U.S. equities in five out of six sessions prior to Yellen’s speech. The selloff was briefly interrupted on Monday when Fed officials said a 2015 increase is still warranted. Traders are split on whether it will happen, pricing in about a 43 percent chance of a hike in December and a roughly 51 percent probability of liftoff in January.

The S&P 500 lost 1.4 percent this week, and posted its first back-to-back weekly drop since July. The benchmark has lost 6.4 percent in the third quarter, on track for its worst performance and first consecutive quarterly declines since 2011, with equities pressured as China’s slowdown weighed on sentiment.

Amid the intensified weakness in stocks, the Chicago Board Options Exchange Volatility Index has closed above 20 for 25 straight sessions, the longest stretch since January 2012. The measure of market turbulence known as the VIX rose 0.6 percent Friday to 23.62, after earlier erasing an 11 percent drop.

Better Growth

Calming some worries about the impact of an emerging-market downturn, data today showed the world’s largest economy expanded more than previously forecast in the second quarter. Growth was boosted by gains in consumer spending and construction. A separate report showed a final measure of consumer sentiment for September fell less than forecast, though it reached the lowest level in almost a year.

Seven of the S&P 500’s 10 main groups rose Friday, with financial, consumer staples and utilities shares gaining the most. Health-care companies slid 2.7 percent to the lowest in almost 11 months.

Biotech shares were a drag on the broader health-care group amid biotech’s longest losing streak in four years. The Nasdaq Biotechnology Index lost 5.1 percent, and is down 22 percent from an all-time high on July 20. The group has stumbled since Democratic presidential hopeful Hillary Clinton suggested on Monday there may be “price gouging” in the market for prescription pills.
Celgene Corp. and Mylan NV lost more than 4.2 percent.

Managed-care companies and insurers added selling pressure to the health-care sector. The SPDR S&P Health-Care Services ETF slipped 2.8 percent, extending its two-day loss to 4.5 percent. The fund fell 4.9 percent for the week, the most in more than three years.

“It’s a rotation,” said Ian Nakamoto, director of research with MacDougall MacDougall & MacTier Inc. in Toronto. His firm manages about C$5.3 billion ($4 billion). “It’s been such a winner, the health-care sector. Now that the Fed has said rates will increase people will move back into financials.”

Financials, Nike

Financial companies in the benchmark gauge climbed 1.5 percent as 81 out of 88 companies increased. E*Trade Financial Corp. and Northern Trust Corp. added more than 2.6 percent as investors speculated higher interest rates will help boost profitability. The KBW Bank Index rose 2 percent as 23 of 24 firms gained. U.S. Bancorp and Citigroup Inc. increased more than 2.2 percent.

Consumer discretionary companies finish little changed, despite Nike’s 8.9 percent jump to a record after its earnings beat estimates, helped by higher prices and a lower tax rate. Worldwide futures orders rose 17 percent at the globe’s largest maker of athletic gear, exceeding analysts’ estimates, with order growth in Europe, China, Japan and emerging markets also topping projections. That’s soothed shareholders, who have seen shaky overseas economies and currency fluctuations threaten sales.

Nike competitor Under Armour Inc. gained 1.4 percent. Among other consumer discretionary shares, a handful of automotive-related companies rebounded from a three-day losing streak amid the fallout from the Volkswagen AG diesel-emissions scandal. BorgWarner Inc. and Goodyear Tire & Rubber Co. rose more than 1.8 percent.

A rally among a swath of food manufacturers paced gains in consumer staples. Kellogg Co., Hormel Foods Corp. and Campbell Soup Co. all rose more than 1 percent. Reynolds American Inc. climbed 2.1 percent, on track for its best day since July, as people familiar with the talks said Japan Tobacco Inc. is in talks to buy cigarette assets from Reynolds.

Pier 1 Imports Inc. slumped 12 percent to an almost five-year low after cutting its fiscal 2016 profit forecast. The retailer said sales growth has been below expectations, and margins have been hurt by increased promotional and clearance activity.

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