U.S. Stocks Erase Post-Fed Rally, Commodity Shares Lead Retreat

Updated on
  • Stronger dollar weighs on raw-material, energy shares
  • Oracle slumps, FedEx climbs after reporting earnings

U.S. stocks dropped, ending the Standard & Poor’s 500 Index’s three-day rally, as investors moved past the Federal Reserve’s interest-rate increase and returned their focus to weakness in commodities and prospects for global growth.

A stronger dollar in the wake of the Fed’s move weighed on energy and raw-material shares, as crude tumbled below $35 a barrel. General Mills Inc. sank 3.3 percent after its quarterly results missed estimates, and Oracle Corp. slumped after its revenue fell short of forecasts. FedEx Corp. gained 2 percent after beating profit targets.

The S&P 500 fell 1.5 percent to 2,041.89 at 4 p.m. in New York, erasing Wednesday’s post-Fed gains, and paring gains this week of as much as 3 percent. The index slipped below its average prices during the past 50 and 200 days. The Dow Jones Industrial Average lost 253.25 points, or 1.4 percent, to 17,495.84. The Nasdaq Composite Index declined 1.4 percent. About 8 billion shares traded hands on U.S. exchanges, 9.4 percent above the three-month average.

“The kind-of euphoria aside over the Fed finally doing something, rates going up doesn’t mean good things for stocks,” said Malcolm Polley, who oversees $1.4 billion as president and chief investment officer at Stewart Capital Advisors LLC in Indiana, Pennsylvania. “In my mind, there’s nothing good that comes out of a Fed rate hike except they’re finally off zero.”

The S&P 500 surged 1.5 percent Wednesday following Fed Chair Janet Yellen’s message that the economy is performing well and the central bank is in no rush to raise rates again. However, the rout today in commodities has rekindled concern that global growth remains tepid.

Policy makers have made it clear that the pace of future rate increases will depend on progress in economic data. A report today showed fewer Americans than forecast filed applications for unemployment benefits last week, a sign of persistent strength in the labor market. A separate report showed an index of leading indicators rose more than estimated in November.

The S&P 500 has declined 1.9 percent in December, bucking a trend of strong performance. Historically, the bulk of the final month’s gains arrive around the same time as Santa Claus and last through the end of the year. For the same thing to happen in 2015, investors will have to remain at peace with the first rate hike in more than nine years and navigate concerns ranging from weakness in commodities to stress in junk bonds.

“Investors are focusing on some of the lingering issues with regard to stocks -- falling price of oil and global weakness,” said Walter “Bucky” Hellwig, who helps manage $17 billion as a senior vice president at BB&T Wealth Management in Birmingham, Alabama. “To the extent that there’s doubt about earnings increases next year, that’s going to cause some concerns in the market.”

Earnings had some influence on Thursday’s trading, with Oracle sinking the most in two years after revenue missed analysts’ estimates for the 10th time in 12 quarters. The company has been pressured as customers transition from the traditional model of buying software installed on corporate computer systems to products delivered over the Internet.

Oracle, FedEx

General Mills had its biggest slide since September after the maker of Cheerios and Lucky Charms posted results that missed estimates, hurt by sluggish demand for breakfast cereals in the U.S. FedEx gained 2 percent after its earnings beat estimates and the package delivery giant said growth in e-commerce is resulting in record holiday shipments so far this season.

The Chicago Board Options Exchange Volatility Index rose 6.1 percent Thursday to 18.94, after tumbling 15 percent yesterday amid the post-Fed rally. The measure of market turbulence known as the VIX is down 22 percent this week after a 65 percent surge last week, which was the most since August.

Nine of the S&P 500’s 10 main industries retreated, with energy and raw-materials shares losing more than 1.9 percent. Technology, financial and consumer discretionary companies drop at least 1.5 percent, while utilities rose for a fourth day, their longest streak in more than a month.

Energy Tumbles

Marathon Oil Corp. and Williams Cos. dropped more than 7.2 percent to lead declines among energy producers. The group is down 10 percent in December. West Texas Intermediate crude futures slid 1.6 percent to settle at $34.95 a barrel, trading near levels last seen during the global financial crisis on signs a record surplus will worsen.

While energy was the hardest-hit sector in today’s selloff, three of the S&P 500’s best-performing stocks were from the group, with Consol Energy Inc., Marathon Petroleum Corp. and Valero Energy Corp. up at least 2.1 percent.

Raw-materials stocks fell 1.9 percent. Newmont Mining Corp. and Freeport-McMoran Inc. both tumbled more than 7.7 percent as gold and copper prices fell amid the stronger dollar. A rising U.S. currency cuts the appeal of metals and other commodities as stores of value.

CVS Health Corp. and Wal-Mart Stores Inc. both fell more than 2.1 percent, helping to drag consumer-staples companies down as much as 1.3 percent. Coca-Cola Enterprises Inc. slipped 4.4 percent, the most in four months, after trimming its first-quarter guidance.

Banks Fall

Financial companies slipped 1.6 percent, with Bank of America Corp. and JPMorgan Chase & Co. pacing the selloff. Aon Plc fell 3.8 percent, the most in three months, while State Street Corp. declined 3.2 percent after saying it incorrectly invoiced at least $200 million in asset servicing expenses to clients.

Comcast Corp. and Walt Disney Co. weighed the most on consumer-discretionary companies with declines of at least 1.5 percent. Wynn Resorts Ltd. and Nordstrom Inc. were the group’s worst performers, losing more than 5 percent.

Among other companies moving on corporate news, Polaris Industries Inc. lost nearly 11 percent, its steepest drop in seven years to a more than two-year low. The maker of snowmobiles and all-terrain vehicles cut this year’s earnings and sales estimates, citing weak demand, in part because of relatively warm weather.

Pier 1 Imports Inc. tumbled 20 percent to the lowest since February 2010 after third-quarter sales and profits missed analysts’ estimates. The furniture chain also cut its earnings forecast, citing a decline in “casual” in-store shoppers.