U.S. Stocks Fluctuate as Drop in Energy Shares Offset Fed

New York (Feb 18)  U.S. stocks fluctuated, after the Standard & Poor’s 500 Index rose to a record Tuesday, as speculation the Federal Reserve will keep rates lower for longer offset a drop in energy shares.

The S&P 500 slipped less than 0.1 percent to 2,099.51 at 3:24 p.m. in New York after dropping as much as 0.4 percent. The Dow Jones Industrial Average dropped 6.97 points to 18,040.61. Trading in S&P 500 companies was 15 percent below the 30-day average.

Equities pared losses as minutes from the Fed’s latest meeting showed some policy makers argued for keeping rates low for longer amid risks facing the economy.

“The fact that they’re staying slow on moving up rates makes you think that the economy might not be as strong as we think it is,” Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2 billion, said in a phone interview. “We still haven’t gotten to the point where a stronger economy and the Fed considering moving rates is an explicit positive for the market.”

The Federal Open Market Committee, while considering risks to be “nearly balanced,” pointed to a strengthening dollar, international flash points from Greece to Ukraine, and slow wage growth as weakening the case for the first rate rise since 2006, according to a record of the Jan. 27-28 meeting.

The FOMC said after its last meeting it “can be patient” as it considers when to raise the benchmark interest rate, even as it described the labor market as “strong.” A report the following week showed payrolls rose more than forecast in January to cap the strongest three-month gain in 17 years.

Status Quo

“It’s evident that they’re going to stick with the patient theme,” Jeff Sica, president and CEO of advisory firm Circle Squared Alternative Investments, which oversees $1.5 billion, said in a phone interview. “This was a status quo message. They’re playing their cards very close to the vest because of the vulnerability in Europe and the potential of this Greek crisis getting worse.”

Speculation that a Greek debt impasse is easing helped the S&P 500 reach an all-time high yesterday, while European equities today rallied to their highest in seven years. A government official, speaking on condition of anonymity, said Greece will submit its request for a loan extension tomorrow.

Factory Production

Data today showed factory production in the U.S. rose less than forecast in January, held back by a decline in motor vehicle assemblies and weaker demand for construction materials.

A separate report on housing starts showed builders broke ground on fewer U.S. residential construction projects in January as demand for single-family homes cooled from an almost seven-year high. Wholesale prices in the U.S. fell more than forecast in January, led by plunging energy costs and signaling inflation remains tame even as the economy is expanding.

The route for stocks this year has been uneven -- a 5.1 percent rally in February after the worst month in a year in January has evened out to a 1.8 percent gain for 2015, trailing most developed markets.

Energy companies in the S&P 500 dropped 1.4 percent, led by Diamond Offshore Drilling Inc.’s 7.5 percent retreat, as oil prices resumed a decline after three days of gains. West Texas Intermediate slipped 3.5 percent. Crude lost more than 3 percent Tuesday before rebounding to a 1.4 percent gain.

Exxon Mobil Corp. declined 2.1 percent after Warren Buffett’s Berkshire Hathaway Inc. exited a $3.7 billion investment in the company.

Some big hedge fund managers have cut their holdings in U.S. stocks in the fourth quarter and shifted assets globally as the slide in oil prices hammered energy holdings.

Greenlight Capital’s David Einhorn said he’s scaled back bets on stock gains after markets climbed and as a stronger dollar threatens to limit earnings of U.S. companies from operations overseas.

Hedge Funds

David Tepper’s Appaloosa Management had $2.74 billion less in U.S. stocks in the fourth quarter, a 40 percent drop from the previous quarter. Soros Fund Management, the family office of billionaire hedge fund manager George Soros, moved about $2 billion into companies in Asia and Europe, according to a person familiar with the strategy.

Some managers, such as Leon Cooperman, 71, remain bullish on the U.S., while predicting bigger gains elsewhere.

“We expect the European and Japanese equity markets to outperform the U.S. in the coming year,” Cooperman, who runs Omega Advisors, wrote in an investor letter last month.

Earnings Season

The Chicago Board Options Exchange Volatility Index climbed 0.4 percent to 15.86. The gauge, know as the VIX, fell 15 percent last week.

Fossil Group Inc. tumbled 17 percent. The maker of watches, handbags and other accessories posted fourth-quarter sales and an annual forecast that trailed analysts’ estimates. Earnings this year won’t exceed $6.05, the company said. Analysts estimated $7.52.

Bank stocks fell, with the KBW Bank Index down 1.4 percent and headed for its biggest decline this month after Fed minutes signaled interest rates will remain low for longer. Bank of America Corp. slid 2.1 percent and Comerica Inc. lost 2 percent.

Boston Scientific jumped 12 percent. The company said it will pay $600 million to Johnson & Johnson to settle a lawsuit over its $27.5 billion acquisition of Guidant Corp. almost a decade ago.

Deere & Co. climbed 3 percent after Berkshire Hathaway more than doubled its stake in the company in the fourth quarter, to 17.1 million shares.

Utility companies were the S&P 500’s best performers Wednesday, rising 2.4 percent after falling 4.5 percent over the previous four sessions.

Source: Bloomberg