U.S. Stocks Decline Amid Focus on Central Banks as Fed Gathers

  • Fed expected to hold off on rate hike until June at earliest
  • Data cast doubt on ability of consumers to boost growth

Bridging the Gap on Fed, Investor Growth Expectations

U.S. stocks slipped in light trading, with the Standard & Poor’s 500 Index posting back-to-back declines for the first time this month, as investors considered the capacity of central banks to boost global growth.

The complexion of Tuesday’s retreat mirrored yesterday’s results, with commodity companies among the biggest losers, joined again by health-care and financial shares. Valeant Pharmaceuticals International Inc. plunged 51 percent after cutting its profit forecast. Apple Inc. added 2 percent amid positive analyst comments on iPhone sales, while baby formula maker Mead Johnson Nutrition Co. surged 11 percent on deal speculation.

The S&P 500 declined 0.2 percent to 2,015.93 at 4 p.m. in New York, trimming an earlier 0.7 percent slide. The Dow Jones Industrial Average added 22.40 points to 17,251.53, after erasing a 108-point decline. The Nasdaq Composite Index slid 0.5 percent, while the Russell 2000 Index sank 1.6 percent. About 6.5 billion shares traded hands on U.S. exchanges, 26 percent below the 2016 average. Yesterday’s session saw the fewest shares traded this year.

“The Fed is really the key this week,” said Bob Phillips, co-founder and managing principal at Indianapolis-based Spectrum Management Group Inc. “With January retail revised down, that’s going to be viewed as a negative because the question is, where is the consumer and why aren’t we seeing savings from low oil prices flow through to sales elsewhere? It probably causes the Fed to be much more cautious in announcing a rate increase because that’s a fundamental weakness in the economy.”

U.S. equities retreated with shares in Asia and Europe after the Bank of Japan refrained from adding more stimulus. Central banks around the world have indicated a willingness to continue measures to support economic growth and stabilize markets, helping stocks rebound in the past month. The Federal Reserve kicked off a two-day policy meeting today, with investors tempering their trading before the outcome Wednesday afternoon.

Traders are pricing in little chance of a rate increase, though bets for a boost later in the year have risen. The probability of a June move is now seen at almost 54 percent, from 2 percent a month ago.

Fed officials have stressed that the pace of rate increases will be gradual and data-dependent. A report today showed retail sales dropped in February and the prior month’s gain was revised to a decline. Separate data showed wholesale prices fell last month, held down by lower fuel costs that have kept inflation languishing below the Fed’s goal.

Another measure showed confidence among homebuilders held in March at a nine-month low as sales prospects waned, while other data indicated inventories at warehouses, stores and showrooms are not being drawn down amid tepid underlying demand.

The S&P 500 has rebounded 10 percent since a Feb. 11 low, paring its 2016 drop to 1.4 percent, after concern over China’s economic slowdown and a deepening oil rout triggered losses of as much as 11 percent. The index is among the best-performing developed-market benchmarks tracked by Bloomberg this year.

Muted VIX

But while a gauge of investor anxiety hovers close to the lowest level of 2016, not all traders are convinced. The concern is visible in the record number of shares outstanding in an exchange-traded note betting on an increase in the Chicago Board Options Exchange Volatility Index, known as the VIX. The measure wiped out gains at the close, decreasing 0.5 percent today to 16.84, on the way to its first monthly decline since October.

“All the concerns we had at the beginning of the year are still pretty much there,” said Kully Samra, who manages U.K. clients for Charles Schwab Corp. in London. “It’s all about how much central banks can reassure investors. Language has become a policy tool in itself -- the way the Fed communicates with the market is going to be very important. The rebound has basically sent markets back to neutral territory.”

Six of the S&P 500’s 10 main groups declined Tuesday, with health-care and raw-materials shares dropping more than 0.9 percent. Energy was little changed after erasing almost all of a 1.9 percent selloff. Technology stocks added 0.4 percent, while phone, utility and consumer staples companies edged higher.

Drugmakers Slump

Fallout from Valeant’s tumble was palpable as declines among drugmakers dragged down the broader health-care group. Pfizer Inc. and Merck & Co. decreased at least 1.2 percent. The Nasdaq Biotechnology Index fell 3.9 percent, the most in two months. Mallinckrodt Plc dropped nearly 15 percent, while Endo International Plc plunged 23 percent, its worst slide in 12 years. The Russell 2000 Health-Care Index lost 4 percent, the biggest retreat in five weeks.

Energy producers followed oil lower for a second day as Iran bolstered crude exports and Russia signaled the Persian Gulf nation won’t join major producers in freezing output to reduce a global glut. Chesapeake Energy Corp. sank 4.6 percent, trimming a drop of nearly 10 percent, after losing 6.8 percent Monday. Pipeline operator Kinder Morgan Inc. decreased 3.6 percent.

Freeport-McMoRan Inc. fell 7 percent to lead raw-materials lower. The copper producer’s shares had rallied 40 percent since Feb. 25 through yesterday. Alcoa Inc. and CF Industries Holdings Inc. retreated more than 5.2 percent.

Financials slipped for a second day. Jefferies Group reported a first-quarter loss as revenue from trading stocks and bonds tumbled 82 percent. Leucadia National Corp., which owns the firm, fell 5.7 percent, the most in three years. Also among the worst-performing financial companies, CBRE Group Inc. and Franklin Resources Inc. fell at least 3.3 percent.

Gains in Apple and Hewlett Packard Enterprise Co. helped lift tech shares, as the companies advanced at least 2 percent. Apple rose to its highest price this year amid its longest rally in six months, as demand for its iPhone in the March quarter continues to grow, according to analysts at Morgan Stanley and Rosenblatt Securities Inc.

The retailer group was little changed after the government’s monthly sales figures, though gains of 0.7 percent or less in Home Depot Inc., Amazon.com Inc. and Priceline Group Inc. helped offset steeper declines in a bevy of chain stores with lower weightings in the index. Kohl’s Corp. fell more than 3.6 percent, while Best Buy Co. and Macy’s Inc. dropped more than 1.7 percent.

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