U.S. Stocks Fluctuate as Drugmakers Rally Offsets Slide in Oil

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  • Fed’s Fischer says economy close to central bank goals
  • Yellen’s speech in Jackson Hole awaited for further clues

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U.S. stocks fluctuated after erasing an early slide, as a rally in drugmakers spurred by deal activity offset declines in commodity shares led by falling crude-oil prices.

Equities rebounded as health-care shares climbed after Pfizer Inc. agreed to buy Medivation Inc. for about $14 billion. The Nasdaq Biotechnology Index surged the most in three weeks. Meanwhile, energy producers sank as crude futures ended the longest winning streak in four years. Investors also shrugged off speculation that interest rates may increase this year after Federal Reserve Vice Chairman Stanley Fischer said the economy was close to meeting the central bank’s goals.

The S&P 500 Index was little changed at 2,183.85 at 10:57 a.m. in New York, after falling as much as 0.4 percent. The Dow Jones Industrial Average added 2.57 points to 18,555.14, wiping out an 86-point drop. The Nasdaq Composite Index increased 0.2 percent, bolstered by Medivation’s 20 percent jump and gains of more than 1.8 percent in Celgene Corp. and Regeneron Pharmaceuticals Inc.

“The Pfizer-Medivation deal is helping the biotech sector and also on the positive side, bank stocks are doing better,” said Andrew Brenner, the head of international fixed income for National Alliance Capital Markets. “The bond market already flipped around, and it took equity markets a little longer to do so. People are still short on equities and they’re being forced to cover. I don’t see any significant volumes, but it doesn’t take much to turn things around.”

A rally that has brought equities to a series of all-time highs since early July lost some momentum last week as investors mulled extended valuations, skepticism over a recovery in corporate profits and mixed signals from policy makers over the timing for higher rates. The S&P 500 closed Friday down less than a point over the five-day period for just its second weekly decline since June. The gauge’s price relative to future earnings has climbed to 18.6, the highest since 2002.

Speaking in Colorado on Sunday, Fed Vice Chair Fisher signaled that a 2016 rate hike is still under consideration, and forecast economic growth to pick up in coming quarters as investment recovers. New York Fed President William Dudley warned last week that investors are underestimating the likelihood of an imminent rate increase.

“Stan Fischer’s comments clearly raised the risk of a more hawkish tone from Yellen on Friday, so that’s impacting the dollar, risk assets and commodity prices,” Dennis Debusschere, senior managing director and global portfolio strategist at Evercore ISI, said by phone. “Offsetting that is the idea that if they raise rates very slowly, they’ll stop at a lower, neutral rate. Any weakness related to the prospects of Fed tightening are going to be short lived.”

Attention will now turn to Fed Chair Janet Yellen’s Aug. 26 address in Jackson Hole, Wyoming, for clues on the timing of potential rate hikes. Traders’ bets on higher borrowing costs have been pushed forward, with December now the first month showing at least even odds of an increase, from June 2017 on Aug. 10. Readings later this week on home sales, durable goods orders and a revised look at second-quarter growth will also figure into sentiment on future rate moves.

Focus is shifting back to the Fed as the second-quarter earnings season ends. About 96 percent of S&P 500 companies have now reported, and of these, 79 percent beat profit forecasts, while 56 percent exceeded sales expectations. Analysts project third-quarter earnings will fall 0.9 percent, which would be a sixth consecutive drop, the longest since the financial crisis.

“Clearly there is a battle going on between what seems to be a perfectly reasonable macro environment on the one hand, against the lack of positive earnings growth,” said Daniel Murray, head of research at EFG Asset Management in London. “Although earnings growth is beating expectations, in absolute terms, earnings growth has been quiet muted.”

— With assistance by Justin Villamil

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