U.S. Stocks Little Changed Amid Tempered Optimism on ECB Steps

  • ECB delivers rate cuts, boosts scope on bond-buying program
  • Late-day comeback erases most declines in major indexes

What Do ECB's Moves Signal to Global Markets?

U.S. stocks closed little changed after swinging between gains and losses, as investors assessed fresh stimulus measures unleashed by the European Central Bank and whether selling Thursday went too far in the face of the new initiatives.

Equities stormed back in a final-hour rebound, with major indexes wiping out declines that had reached more than 1 percent. An earlier retreat was led by industries that were among the biggest contributors to a three-week rally, including banks and technology companies. JPMorgan Chase & Co. slipped 0.9 percent and Microsoft Corp. dropped 1.5 percent.

The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,989.57 at 4 p.m. in New York, after climbing as much as 0.8 percent and dropping 1 percent. The Dow Jones Industrial Average lost 5.23 points, or less than 0.1 percent, to 16,995.13. The gauge lost 178 points at the session low. The Nasdaq Composite Index fell 0.3 percent. About 8.4 billion shares traded hands on U.S. exchanges, 5.6 percent below the average in 2016.

“It’s more market reaction in extremes rather than anything significant going on,” Krishna Memani, chief investment officer at Oppenheimer Funds, said by phone. “Draghi sometimes shoots himself in the foot with what he says and that took away from what he’s doing, but what the ECB is doing is highly stimulative. There’s no doubt about that and it’s going to have a meaningful impact on credit spreads and hopefully, for some time, on growth prospects.”

The European Central Bank cut all its interest rates and expanded the scope of its bond-buying program as President Mario Draghi strives to fend off the threat of euro-area deflation. The moves exceeded market expectations and initially spurred demand for risky assets. Draghi said at a press briefing that risks to the euro-area growth outlook are still to the downside, and the rate of inflation will remain negative before picking up later in the year. Still, he said he doesn’t anticipate more rate cuts.

In the aftermath, equities lurched from optimism that the ECB’s moves could boost growth to concern that the bold new measures will fall short, and then back again. Even before today, the S&P 500’s recent rebound was showing signs of fatigue as banks -- a pillar of the rally -- fell for a third day Wednesday, the longest losing streak in nearly a month. The muted reaction to the ECB’s efforts illustrated central banks’ waning influence on markets as they seek to prop up growth.

“At some point, monetary policy can’t be the only driver of the direction of stock prices or the assumption of risk,” said Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co., which oversees $8.5 billion in Bryn Mawr, Pennsylvania. “We need to see revenue and earnings growth in the corporate sector, and less stringent fiscal policies, particularly in the U.S.”

Speculation for additional moves from the ECB to boost growth, along with stability in oil prices and improving U.S. data helped global equities rebound during the prior three weeks. The main U.S. equity benchmark had jumped 9 percent since a 22-month low last month, trimming its losses for 2016 amid speculation that monetary policy around the world will support global growth.

“It’s a soup day -- there’s a little bit of everything in it,” said Larry Peruzzi, managing director of international equities at Mischler Financial Group Inc. in Boston. “Mostly the Draghi/ECB pop faded and oil broke below $37.50, which some see as a technical level, and also look at the U.S. dollar that rolled over when markets did. So basically we are back to where we were earlier in the week, looking for a catalyst or direction.”

Fed Looms

Comments from the Federal Reserve next week may give investors more cues on the path of interest rates. Fed officials have stressed that the pace of rate increases, following December’s first hike since 2006, will be gradual and data-dependent. 

A report today showed filings for unemployment benefits fell last week to the lowest level in five months. Employers are demonstrating an appetite to further add to staff and hold off on firings based on a brighter U.S. outlook, even as overseas growth sputters. Traders are pricing in practically no chance of higher borrowing costs this month, while odds for a September Fed move have risen to 61 percent from less than 30 percent two weeks ago.

While the seven-year U.S. bull market has restored about $14 trillion to stock values, investors have been withdrawing money from equity funds as concerns over shrinking earnings, China’s economic slowdown and interest-rate policy take over. The S&P 500 has is little changed in the past 18 months, while rising almost 200 percent since the low on March 9, 2009.

“From a stimulus front, it seems like the ECB really stepped up to the plate,” said Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer’s Investment Research Inc. “When you look at the U.S. market and the S&P 500, it has to be in the context of the strong rally we’ve had the last several weeks. Maybe there’s going to be a reluctance to buy until the market takes a little bit of a breather.”

The Chicago Board Options Exchange Volatility Index fell 1.6 percent Thursday to 18.05, erasing a 6.8 percent climb. The measure of market turbulence known as the VIX is on track to snap a streak of three consecutive weekly declines, the longest this year.

Banks, Tech

Seven of the S&P 500’s 10 main groups gained today, while technology, industrial and financial shares sank 0.1 percent. Consumer discretionary stocks gained 0.2 percent and energy producers pared a 1.8 percent drop to end the day little changed. Phone and raw-materials companies advanced at least 0.4 percent.

Along with Microsoft’s decline, Oracle Corp. slid 1.1 percent. Microsoft is offering free licenses for its database software to current Oracle customers in its latest effort to wrestle market share from its competitor. Cisco Systems Inc. fell 0.8 percent to erase a portion of a 2.1 percent climb yesterday.

Banks in the benchmark edged higher to snap a three-day losing streak, the longest since stocks reached a recent low on Feb. 11. Wells Fargo & Co. and U.S. Bancorp retreated more than 0.5 percent, while Bank of America Corp. and Fifth Third Bancorp rose more than 1 percent. Lenders had rallied 15 percent from last month’s nadir through March 4.

Among shares moving on corporate news, Williams Cos. fell 8.3 percent, after suitor Energy Transfer Equity LP disclosed in a filing late Wednesday that it had completed a private unit offering that it may use to help pay down debt associated with the deal after Williams blocked its proposal to hold a public offering.

Dollar General Corp. surged 11 percent to a record after fourth-quarter profit topped analysts’ estimates, helped by rising food sales. The shares climbed the most since August 2014.

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