U.S. Stocks Decline After FBI Reopens Probe Into Clinton E-Mails

  • Retreat a sign of ‘fragile’ sentiment before election
  • Chevron surges on earnings, health-care shares tumble

U.S. stocks declined, with the S&P 500 Index falling to a six-week low, after the Federal Bureau of Investigation reopened a probe into Hillary Clinton’s use of an unauthorized e-mail server.

Word of the FBI’s renewed investigation rattled investors, wiping out gains as equities careened down from the day’s highs. An earlier advance came as data bolstered speculation a stronger economy may lift corporate earnings, while rallies in Alphabet Inc. and Chevron Corp. overshadowed a selloff among drugmakers.

The S&P 500 fell 0.3 percent to 2,126.41 at 4 p.m. in New York, erasing a 0.4 percent advance. The gauge fell as much as 0.6 percent and extended the longest losing streak since June. The Dow Jones Industrial Average slipped 8.49 points to 18,161.19, after reversing a 0.5 percent climb. The Nasdaq Composite Index dropped 0.5 percent, joining the S&P 500 at a six-week low. About 7.4 billion shares traded hands on U.S. exchanges, 14 percent above the three-month average.

“Clinton is clearly priced to win, and anything that disrupts the market’s predictions will have an adverse reaction,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “The market has to re-price for a new level of uncertainty, and we’re now dealing with a big heaping teaspoon of it. It has to change its probabilities and change how it’s thinking.”

It’s not the first time U.S. stocks have been sensitive to perceptions about Clinton’s political prospects. Futures on the S&P 500 rallied three-quarters of a percent during the first presidential debate, when her odds of winning shot up on online prediction markets. A win by Donald Trump “would reduce the value of the S&P 500, the U.K., and Asian stock markets by 10-15%,” economics professors Justin Wolfers and Eric Zitzewitz say in paper released by Brookings Institute.

“The FBI has learned of the existence of emails that appear to be pertinent to the investigation,” FBI Director James Comey said in a letter to eight committee chairmen in Congress. “I agreed that the FBI should take appropriate investigative steps designed to allow investigators to review these emails to determine whether they contain classified information.”

Equity markets have been wagering on a Clinton victory, with the latest RealClear Politics poll average showing her with an advantage of about 5 points. Stocks have been stuck in a range of about 65 points since August as the looming presidential election and expectations for higher interest rates upstage a recovery in corporate profits. The S&P 500 capped a third weekly decline in four, losing 0.7 percent.

“What it says to me is that the market is pretty fragile here and that any bit of small news can tip this thing,” Peter Cecchini, co-head of equities and chief market strategist at Cantor Fitzgerald, said in an interview on Bloomberg Television. “A Trump victory would be quite disruptive to the market because of the uncertainty.”

Following the Clinton news, traders pared bets on a December interest-rate increase by the Federal Reserve, with odds slipping to 70 percent from 74 percent earlier. They’re pricing in a less than 20 percent chance the central bank will act at next week’s meeting, just days before the U.S. vote.

A report today showed gross domestic product increased the most in two years last quarter as a build in inventories and a soybean-related jump in exports helped cushion softer household spending. Separately, consumer confidence dropped more than previously reported to match the lowest level since 2014.

“This confirms further the acceleration in the economy that will give the Fed further confidence to raise rates in December,” said Michael Arone, the Boston-based chief investment strategist at State Street Global Advisors’ U.S. intermediary business. “It was good to see some additional contributions to GDP from something other than the consumer -- we’ve been looking for that to broaden the growth and it looks like we got some signs of that here in the third quarter.”

As one of the busiest weeks of the earnings season draws to a close, 78 percent of S&P 500 firms that reported this season beat profit projections and 58 percent topped sales estimates. Analysts now expect quarterly earnings growth of 1.6 percent for benchmark members, reversing forecasts for a 1.6 percent decline at the start of the month. If the prediction holds, it will end the longest earnings recession since the financial crisis.

Prior to the afternoon swoon, equities were cruising higher on gains from Google parent Alphabet and Chevron’s strongest rally since March, as investors cheered their quarterly results. Those moves had been enough to overcome Amazon.com Inc.’s steepest drop in eight months on a disappointing outlook, and as drug distributor McKesson Corp. plunged the most since 1999 to lead health-care lower.

Among other shares moving on earnings news:

  • Hershey Co. rose the most since June after boosting its full-year earnings forecast.
  • AbbVie Inc. sank 6.3 percent after its profit narrowly beat analysts’ estimates, while its top-selling arthritis injection, Humira, fell short of predictions.
  • Amgen Inc. suffered its steepest drop in 15 years after sales of the company’s biggest product fell amid increasing price pressure.
  • Mastercard Inc. gained 3.2 percent to a record as profit and revenue beat predictions at the second-largest U.S. payments network.

Bucking a historical trend that has seen October post the biggest gains on average of any month over the past 25 years, the S&P 500 is on its way to a decline. It’s down 1.9 percent for the period, the worst since a plunge at the start of the year.

In Friday’s trading, five of the S&P 500’s 11 main industries rose, led by a 0.7 percent gain in industrials. Health-care fell 2.2 percent to a seven-month low. The CBOE Volatility Index increased 5.4 percent, stretching gains to a fourth day, the most since August. The measure of market turbulence known as the VIX climbed 21 percent for the week.

Honeywell International Inc. and United Technologies Corp. added more than 0.9 percent to join General Electric Co. in powering the industrials. GE rose 2.1 percent after saying it’s in discussions with Baker Hughes Inc. to form unspecified partnerships. Fortive Corp. and Stericycle Inc. jumped more than 5.7 percent after their profits topped forecasts.

McKesson’s 23 percent tumble led health-care lower, after cutting its annual forecast in response to aggressive price competition. That dragged down competitors, with AmerisourceBergen Corp. and Cardinal Health Inc. slumping more than 9.7 percent, the biggest declines for each in at least seven years. Merck & Co. slid 4 percent, the most in 14 months.

— With assistance by Oliver Renick, John Hyland, and Camila Russo

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