U.S. Stocks Slip From Three-Month High on Interest Rate Concern

  • ADP report shows steady growth in private payrolls last month
  • Yellen: December meeting still 'live possibility' for hike

U.S. stocks retreated from a three-month high, after data on payrolls and remarks from Federal Reserve Chair Janet Yellen lifted bets that the central bank is closer to raising interest rates.

Yellen’s comment that December remains a “live possibility” for a rate increase put the brakes on a rally that had carried the Standard & Poor’s 500 Index to within 1 percent of its record. Earnings news also weighed on sentiment as disappointing results from Time Warner Inc. and 21st Century Fox Inc. sent media companies to their steepest decline since August. Energy shares fell for the first time in six sessions. Facebook Inc. rose in late trading following its earnings report after markets closed.

The S&P 500 slipped 0.4 percent to 2,102.47 at 4 p.m. in New York, after yesterday reaching the highest level since July. The Dow Jones Industrial Average declined 51.18 points, or 0.3 percent, to 17,866.97. The Nasdaq Composite Index fell 0.2 percent. About 7.3 billion shares traded hands on U.S. exchanges, in line with the three-month average.

“We’ve come back a long way since the end of September, but we’re not going to go straight back to a record,” said Thomas Garcia, head of equity trading at Thornburg Investment Management Inc. in Santa Fe, New Mexico. “Investors are waiting to get more data points this week to assess a potential rate hike in December.”

Fed Chair Yellen, speaking before the House Financial Services Committee, said an improving economy has set the stage for a December interest-rate increase if economic reports continue to assure policy makers that inflation will accelerate over time. No decision has yet been made on the timing of a rate increase, she cautioned.

Following Yellen’s remarks, Fed Bank of New York President William Dudley said at press briefing he “completely” agrees with Yellen that December is “a live possibility” for liftoff on rates. Vice Chair Stanley Fischer is scheduled to speak tonight. Traders now price in a 58 percent chance the central bank will increase rates at its December meeting, up from 50 percent yesterday and 34 percent last week before its October gathering.

As policy makers look for more progress in the labor market, a report today showed companies added 182,000 workers to payrolls in October, signaling steady improvement. Separate data showed the U.S. trade gap shrank in September to a seven-month low, while, according to another gauge, service producers unexpectedly expanded in October at the second-fastest pace in a decade.

The ADP jobs report today is a precursor to Friday’s government data, in which economists forecast the economy added 182,000 jobs with an estimated 169,000 added to private payrolls. The unemployment rate is expected to slip to 5 percent from 5.1 percent in September.

Some 24 members of the S&P 500 are scheduled to report earnings Thursday, including Celgene Corp., Walt Disney Co. and Kraft Heinz Co. With 80 percent of the benchmark’s companies now in the books this season, about 74 percent have beaten earnings estimates, while only 45 percent have topped sales forecasts. Analysts estimate profits dropped 3.9 percent in the third quarter, up from predictions for a 6.1 percent decline a week ago.

Facebook rose 1.8 percent at 4:35 p.m., as it notched another quarter of revenue that beat estimates after stepping up its mobile-advertising efforts. Profit also exceeded analysts forecasts.

Wednesday’s retreat for the S&P 500 was the first in three days, and follows a 13 percent climb from the bottom of an August selloff that was sparked by China’s surprise currency devaluation. Energy and commodity producers, two of the biggest sufferers in the third-quarter selloff, have paced the rebound.

The Chicago Board Options Exchange Volatility Index rose 6.7 percent Wednesday to 15.51, up for the fourth time in five sessions and reversing an earlier 4 percent decline. The measure of market turbulence known as the VIX posted its biggest monthly drop ever in October.

Eight of the S&P 500’s 10 main groups fell, with energy shares the biggest decliners. Consumer discretionary and raw-material companies lost 0.7 percent. Utilities and technology shares were the session’s only gainers.

Energy Retreats

Energy companies in the benchmark fell 1 percent amid a 3.3 percent drop in the price of crude oil. It was the resource’s biggest decline in three weeks after government data showed that U.S. inventories climbed.

Chesapeake Energy Corp. lost 2 percent, paring an earlier 8.6 percent slide, after saying a $5.4 billion writedown in the value of oil and natural gas fields wiped out third-quarter profits, and more charges are coming because the company sees no sign of a rebound in energy prices. Chevron Corp. and Exxon Mobil Corp. lost at least 1 percent.

Time Warner dropped as much as 10 percent after its 2016 earnings forecast fell short of analysts’ estimates, dragging down other big media companies. Walt Disney Co. dropped 2 percent, while Viacom Inc. lost 6.6 percent. Rupert Murdoch’s 21st Century Fox, which posted lower-than-estimated quarterly revenue, fell 5.2 percent.

Cerner Corp. dropped 6.8 percent, the most among health-care companies and its biggest drop since August 2011, after the company reported earnings that fell short of analyst estimates. Regeneron Pharmaceuticals Inc. slid 2.4 percent, even after its earnings report came in better than forecast. Pfizer Inc. and UnitedHealth Group Inc. lost at least 1.5 percent to pace declines in the group.

Internet Rally

Internet companies were among the session’s best performers, led by gains of more than 2.5 percent in Amazon.com Inc. and Netflix Inc., with Amazon rising to an all-time high.
Facebook Inc. rose 1.4 percent before its earnings report, and Google parent Alphabet Inc. added 0.9 percent to a record. The Nasdaq Internet Index climbed 0.7 percent, also to an all-time high.

Michael Kors Holdings Ltd. rallied 8.3 percent, the most in three months, after the seller of luxury handbags and clothing posted second-quarter profit that topped analysts’ estimates as new retail locations boosted sales.

Range Resources Corp. jumped 10 percent, the best performer in the S&P 500 and the company’s strongest gain in more than four years, after announcing plans to slash its debt by almost a quarter through the sale of Virginia natural gas wells.

Before it's here, it's on the Bloomberg Terminal.