U.S. Stocks Decline After Strongest Three-Day Rally Since August

  • Wal-Mart slides as outlook disappoints, bank shares sink
  • IBM rallies on $2.6 billion Truven Health Analytics deal

U.S. stocks declined following the Standard & Poor’s 500 Index’s strongest three-day advance in almost six months, as banks, technology and consumer shares lost momentum after bolstering the rally.

Wal-Mart Stores Inc. fell 3 percent after lowering its annual sales forecast. JPMorgan Chase & Co. and Citigroup Inc. lost more than 1.6 percent as banks declined for the first time in four sessions. Energy producers sank despite higher crude prices. International Business Machines Corp. rose 5 percent after agreeing to purchase Truven Health Analytics for $2.6 billion.

The S&P 500 slipped 0.5 percent to 1,917.83 at 4 p.m. in New York, halting a rally after the benchmark on Wednesday capped its first three-day gain of the year. The Dow Jones Industrial Average lost 40.40 points, or 0.3 percent, to 16,413.43. The Nasdaq Composite Index fell 1 percent as Apple Inc. and Google parent Alphabet Inc. sank more than 1.9 percent. The gauge had surged 6.3 percent in the prior three days after falling last week to within 1 percent of a bear market.

“The U.S. is not heading toward a recession, but everyone is worried where growth is going to come from and will earnings come close to analysts’ estimates,” said Bob Phillips, co-founder and managing principal at Indianapolis-based Spectrum Management Group Inc. “Until we get through the first quarter and see some earnings releases, we likely will be in a tight trading range.”

Equities lost momentum Thursday after recent gains that have come just as fast as the losses that sent the S&P 500 to its worst start to any year. Almost half of 2016’s decline was erased in the prior three sessions as the most beaten-down industries, including banks, technology and retailer shares, led a comeback. The benchmark is still down 10 percent from its May record, and has lost 6.2 percent this year amid signs of weakness in the global economy and falling commodity prices.

One notable point: the lockstep moves that have paralyzed investors during the recent rout are beginning to ease. Thirty-day correlations between the S&P 500 and 10 other asset classes including oil and global stock markets have fallen in the past two weeks, data compiled by Bloomberg show. As recently as the beginning of this month, equity gauges around the world were moving broadly in tandem -- in several cases by the most in seven years.

With Federal Reserve members expressing concern over the economy, investors are increasingly scrutinizing reports for signs of any damping in growth. Data today showed the number of Americans filing for unemployment benefits unexpectedly declined last week to a three-month low. A separate report showed an index of leading indicators decreased in January for a second month.

In a speech Wednesday, Fed Bank of St. Louis President James Bullard said recent market turmoil that’s contributed to a further decline in investors’ expectations for inflation has given the central bank scope to delay interest-rate increases. San Francisco Fed President John Williams said today his outlook hasn’t changed despite the upheaval, and repeated that he expects the Fed to gradually normalize policy.

The earnings season is drawing to an end and has provided little relief for equities. While about three-quarters of results from S&P 500 companies exceeded profit projections, less than half have topped sales forecasts. Analysts estimate earnings at S&P 500 companies fell 4.5 percent in the fourth quarter and will continue to contract in the following two periods.

The Chicago Board Options Exchange Volatility Index fell 3 percent Thursday to 21.64. The measure of market turbulence known as the VIX has shaved its February climb to about 7 percent, down from 39 percent a week ago as the S&P 500 surged more than 5 percent. About 8.5 billion shares traded hands on U.S. exchanges, 4 percent above the three-month average.

“I would expect a little pullback after three straight days of gains, especially since growth has done particularly well, it may give people some pause and some profit taking,” said Mariann Montagne, who helps oversee $870 million as senior investment analyst at Gradient Investments Group.

Energy, Banks

Eight of the 10 main S&P 500 industry groups fell, led by energy and health-care shares. Financial, technology and consumer discretionary stocks each lost at least 0.6 percent. Utilities rose 1.6 percent, the most in almost three weeks, while phone companies added 1.1 percent.

Financial companies in the benchmark fell, led by lenders which lost 1.7 percent to hand back some of their best three-day rally in five years. Bank of America Corp. and Regions Financial Corp. declined at least 2.5 percent.

Energy producers slipped after the strongest rally since October, even as oil settled higher. The commodity traded below earlier levels after a government report showed U.S. crude inventories advanced to an 86-year high as imports surged. Anadarko Petroleum Corp. and Newfield Exploration Co. fell more than 8.5 percent. Anadarko had rallied almost 14 percent in the previous three trading days.

Marathon Oil Corp. sank 6.5 percent after reporting a fourth straight quarterly loss. The Houston-based explorer also plans to cut spending by more than half, and it reduced its production outlook.

Wal-Mart Drag

In an about-face from their 3.2 percent three-day gain through Wednesday, consumer staples sank, dragged lower amid the fallout from Wal-Mart’s disappointing forecast. Grocery chain Kroger Co. fell 3.5 percent, while Hormel Foods Corp dropped 3.6 percent. Wal-Mart sank the most in four months after closing yesterday as the Dow’s second-best performer so far this year.

Among discretionary shares, Netflix Inc. dropped 4.5 percent after a 9.7 percent gain in the previous three sessions. Amazon.com Inc. declined 1.7 percent, halting a five-day advance which was the longest since October.

IBM was the Dow’s strongest performer today, surging to its biggest gain since July 2011. The Truven deal expands its health-related data services, with the company providing cloud-based data management and analytics to more than 8,500 health-care clients, including hospitals, insurers and government agencies, the companies said in a statement.

Among companies reporting earnings, Perrigo Co. Plc plunged 10 percent to its lowest level since May 2014. The drugmaker’s fourth-quarter earnings missed analyst estimates and said it would abandon some lower growth consumer brands. Perrigo’s tumble was the biggest drag on the health-care group. Allergan Plc and Biogen Inc. lost more than 1.8 percent, while the Nasdaq Biotechnology Index decreased 2.6 percent.

Nvidia Corp. jumped 8.6 percent, the most since November, after the biggest maker of graphics chips used in high-end gaming computers predicted sales that may exceed analysts’ estimates.

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