U.S. Stocks Little Changed on Earnings as Fed Meeting Looms

  • Apple and McDonald’s are among companies reporting today
  • Traders not pricing in Fed hike before March of next year

Earnings from McDonald’s Corp. to Caterpillar Inc. tugged U.S. stocks in opposite directions, leaving benchmark indexes little changed as investors turned attention to Wednesday’s Federal Reserve policy decision.

Housing data that showed the biggest gain in new-home sales in eight years bolstered optimism in the economy and raised the specter that the Fed may strike a more hawkish tone on rates after its two-day meeting. Apple Inc. is slated to report results after the close of trading. Twitter Inc. sank in late trading after forecasting revenue below estimates and amid signs of a struggle to win more ads.

The S&P 500 Index rose less than one point to 2,169.18 at 4 p.m. in New York, narrowly avoiding its first two-day losing streak since the Brexit secession vote a month ago. The index has rallied 8.4 percent in that time after a 5.3 percent rout in the two days following the U.K.’s shock decision to secede from the European Union. The gauge retreated on Monday from a record, with energy producers sliding amid a decline in oil prices. The Dow Jones Industrial Average slipped 0.1 percent to 18,473.61 on Tuesday, and the Russell 2000 Index of small caps added 0.6 percent.

“I don’t get the sense that the stock market will rocket higher any time soon,” said Mark Heppenstall, the Horsham, Pennsylvania-based chief investment officer of Penn Mutual Asset Management. His firm oversees about $20 billion. “It’s hard to make case to push the numbers up from here. A lot of those way of boosting earnings are well played out. You’ll have to see earnings that will drive market from this point as opposed to financial engineering or cost cutting.”

The rally that pushed the S&P 500 up for four straight weeks has faltered as the Fed kicks off a two-day meeting, with economists estimating the central bank will keep borrowing costs unchanged at its conclusion on Wednesday. Traders will also focus on earnings, with 45 companies in the S&P 500 scheduled to report results on Tuesday, including Apple Inc.

Traders are pricing in less than even odds of a rate increase until at least March 2017. While recent economic data have beaten forecasts, Chair Janet Yellen and her colleagues have emphasized a gradual pace of tightening. On Tuesday, data showed consumer confidence fell by less than forecast, while new-home sales rose in June to the highest level in more than eight years. Home prices in 20 U.S. cities rose less than projected in May from a year earlier.

After recovering from its losses following the U.K. vote to leave the European Union, the S&P 500 went on to post seven records in 10 days. Optimism that corporate earnings would help support stock prices has pushed the gauge up 19 percent from its low in February, with analysts easing their estimates for second-quarter profit declines at S&P 500 companies to 4.5 percent. The S&P 500 is now up 6.1 percent for the year, one of the best performances among developed-market equities.

Trading Tuesday was volatile in volume in line with the 30-day average. The S&P 500 reversed morning gains after rising to 2,173.54, coming within about a point of its record close on Friday. It slipped about 13 points in 90 minutes, leveling off around yesterday’s intraday low of 2,161.95. The tumble in the S&P 500 coincided with a period of extreme volume in futures that track the benchmark gauge. Volume in so-called e-mini contracts averaged more than 21,000 a minute between 10:55 a.m. and 10:57 a.m. New York time, compared with an average of about 1,700 in the three minutes prior. The gauge subsequently erased those losses.

Meanwhile, the earnings season has delivered more optimistic outlooks, as the ratio of companies raising their forecasts jumped toward a 12-year high, data from Credit Suisse Group AG show. Nearly 90 percent of companies in the S&P 500 Index that have changed previously disclosed expectations for future earnings have raised the target, among those that reported results between June 1 and July 21, according to data compiled by the bank.

“This market seem more devoid of earnings reactions than I can remember in a while,”  Brian Frank, portfolio manager at Key Biscayne, Florida-based Frank Capital Partners LLC, said by phone.“ It’s all about if central banks are going to do more QE, buying bonds or issuing perpetual zero coupon bonds in Japan. It’s all macro.”

In Tuesday’s trading, five of the S&P 500’s 10 main industries moved lower, led by phone and utility companies, which fell as much as 1.5 percent. Verizon Communications Inc. lost 1.9 percent after it posted wireless subscriber gains that missed analysts’ estimates. 3M Co., after cutting its outlook for sales growth due to pressure from a strong U.S. dollar, dropped 1.1 percent.

Among the biggest declines in the Dow, McDonald’s fell 4.5 percent after reporting same-store sales growth that missed analysts’ estimates. Amid concerns that the U.S. fast-food industry is heading into a recession, Darden Restaurants Inc., Chipotle Mexican Grill Inc. and Yum! Brands Inc. fell as much as 3.8 percent.

Technology companies in the S&P 500 gained 0.4 percent, closing at a 16-year high. The group was boosted by Analog Devices Inc., which announced it will acquire Linear Technology Corp. for about $14.8 billion. Shares in Analog rose 3.9 percent, while Linear posted a 29 percent gain. Also moving on corporate news, Texas Instruments Inc. jumped after the largest maker of analog semiconductors forecast revenue and profit that may beat analysts’ estimates.

Netflix Inc. extended gains from Monday, rallying 4.3 percent after a director, Jay Hoag, disclosed a 600,000 share purchase in the company.

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