U.S. Stocks Slip as China Data Revive Concern on Global Growth

  • Banks tumble as bond yields retreat amid search for safety
  • Power companies lead afternoon rebound to trim losses

Is the Selloff in U.S. Stocks Overplayed?

U.S. stocks slipped in a volatile session amid fresh concern that tepid global growth will weigh on the American economy, just as the Federal Reserve prepares to tighten monetary policy.

While equities closed lower, they pared early losses as a steady afternoon rebound led by defensive shares brought the S&P 500 Index back from a three-month low. Financial stocks slumped as a rally in Treasuries sent bond yields lower, a day before a trio of big banks report quarterly results. Power companies, coveted for their high fixed payouts, surged 1.3 percent, while real estate investment trusts advanced as investors sought out safety.

The S&P 500 declined 0.3 percent to 2,132.55 at 4 p.m. in New York, after losing as much as 1.1 percent. The late-day surge failed to take the gauge back above its average price during the past 100 days, a closely watched level that has served as a floor since June. The Dow Jones Industrial Average fell 45.26 points, or 0.3 percent, to 18,098.94. The Nasdaq Composite Index sank 0.5 percent.

“Dollar strength was a big issue that weighed on the market yesterday, and today as it’s drifted lower we’ve seen somewhat of a recovery in stocks,” Walter Todd, who oversees about $1.1 billion as chief investment officer for Greenwood Capital Associates LLC in South Carolina, said by phone. “Still, the few earnings reports we’ve seen haven’t been great, and people are also concerned about the trade balance data from China.”

The biggest drop in Chinese exports since February was the latest source of anxiety in recent days, after lackluster results from companies including Alcoa Inc. and Honeywell International Inc. spurred worries over corporate profits, while bets that the Fed will hike by December have increased. A bitter U.S. presidential campaign that’s entering its final weeks is also keeping investors on edge.

The CBOE Volatility Index climbed for a third day for the first time in six weeks. The measure of market turbulence known as the VIX rose 4.9 percent to 16.69, a one-month high. About 6.7 billion shares traded hands on U.S. exchanges, 3 percent above the three-month average.

Traders are pricing in a 65 percent chance the Fed will raise rates in December, compared with 19 percent odds for an increase at the Nov. 1-2 gathering, just before the Nov. 8 presidential election. Philadelphia Fed President Patrick Harker said today uncertainty stemming from the U.S. presidential election might be an argument for delaying a rate increase until after the November ballot. Chair Janet Yellen is scheduled to deliver the keynote Friday afternoon at a Boston Fed conference.

“It’s going to take some pretty lousy data to persuade the Fed to not raise rates,” said Art Hogan, chief market strategist and director of research for Wunderlich Securities. “When you have the doves like Rosengren from Boston clearly turning hawkish, there’s been a pivot here. The Fed’s letting us know that December is something they have to be talked out of, not into.”

A report today showed filings for unemployment benefits were at a four-decade low over the past two weeks. Upcoming economic data will give investors more indications about the potential rate path, including figures on retail sales, consumer sentiment and producer prices due on Friday.

Earnings results will be capturing more attention as the reporting pace picks up. Analysts are calling for a 1.6 percent decline in net income at companies in the main U.S. equity gauge, which would mark a sixth consecutive quarter of falling profits. The S&P 500 trades at 18 times forecast earnings, the highest in seven years. JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. will post results on Friday.

In Thursday’s trading, Wells Fargo fell 1.3 percent, a day after John Stumpf stepped down as chief executive officer and chairman, bowing to public outcry over legions of accounts opened by his employees for customers who didn’t request them. Fifth Third Bancorp lost 3.1 percent, the most in three months.

A Bloomberg index of U.S. airlines jumped 3 percent to a five-month high, led by a 5 percent climb in American Airlines Group Inc. Delta Air Lines Inc. added 1.8 percent amid an upbeat outlook from executives and plans to cut capacity in Japan. Ulta Salon Cosmetics & Fragrance Inc. rallied the most since March after raising its sales outlook.

The U.S. stocks benchmark flirted with its second 1 percent drop in three days before rebounding, and nearly halfway through October, it’s on track of the worst month since January. The S&P 500 closed 2.6 percent below an all-time high in August.

“China’s trade data below estimates is an overhang in the market, and from Europe, we’re hearing about a hard Brexit that’s making markets more jittery,” said Jeff Zipper, managing director of investments for The Private Client Reserve of U.S. Bank.“We also had yesterday’s Fed minutes showing a strong chance we move in December, and the market is concerned about earnings season as well. It’s all of these things hitting at once.”

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