US Stocks Slip Before Fed Amid Earnings Reports, Economic Data

New York (Oct 27)  US stocks declined amid mixed earnings reports and data that renewed concern on the strength of the global economy as the Federal Reserve began a two-day monetary policy meeting.

A rally in equities has tapped the brakes as investors await the latest from the Fed. Policy makers kept interest rates near zero last month, opting to hold off for a better read on the impact of weaker growth in China and lackluster inflation. Central bankers in Europe and China last week signaled commitment to bolstering their economies, which helped the Standard & Poor’s 500 Index erase a loss for the year.

The S&P 500 fell 0.5 percent to 2,061.50 at 3 p.m. in New York, near its average price during the past 200 days. The Dow Jones Industrial Average slipped 60 points, or 0.3 percent, to 17,563.05. The Nasdaq Composite Index declined 0.3 percent.

“We’re in wait-and-see mode for the Fed,” said Yousef Abbasi, global market strategist at JonesTrading Institutional Services LLC in New York. “We’re definitely seeing softer data across the U.S., and more negatives than positives in earnings this morning.”

International Business Machines Corp. fell 3.8 percent to a five-year low. The company disclosed this afternoon that regulators are investigating its accounting treatment of certain transactions in the U.S., the U.K. and Ireland, according to a regulatory filing.

Ford Motor Co. lost 5 percent after its profit missed estimates, and United Parcel Service Inc. fell 3.1 percent as its sales were short of forecasts. Drugmakers Pfizer Inc. and Bristol-Myers Squibb Co. gained at least 2.2 percent after their profits topped projections. Alibaba Group Holding Ltd. rose 3.8 percent after its results beat estimates. Yahoo! Inc., which plans to spin off its Alibaba stake, climbed 2.8 percent.

Some 43 S&P 500 companies report earnings today, with analysts projecting profits for index members dropped 6.1 percent in the third quarter. Of the companies that have released results this season, 74 percent have exceeded profit projections, while 57 percent missed sales estimates. Apple Inc. and Gilead Sciences Inc. are scheduled to report after markets close.

As investors assess earnings, uneven economic data recently has meant a murkier outlook on how growth will fare under higher rates. A report today showed orders for business equipment unexpectedly declined in September as tepid global markets gave American companies little reason to expand. A separate gauge showed home prices in 20 cities rose at a faster pace in the year ended August, while another report said consumer confidence fell in October to a three-month low.

Fed Watch

While traders are pricing in little chance of the Fed raising rates in a decision tomorrow, they are seeking indications from the meeting on the trajectory of borrowing costs and the central bank’s assessment of the economy. March is the first month for which traders project at least even odds of a boost.

“Last week’s rally was driven by central banks, so everybody is waiting to see what the Fed has to offer,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, Germany. “I don’t think they’ll give us much at all, but nobody wants to be caught on the wrong side. With no press conference, it will be a case of reading between the lines to interpret their statement.”

A rally in the S&P 500 stalled yesterday as the benchmark recovers from its worst quarter since 2011. The measure is 3.2 percent away from a record reached in May and poised for its best monthly gain in four years after rebounding 11 percent from an August low, propelled by gains in raw-material stocks and global central-bank stimulus.

The Chicago Board Options Exchange Volatility Index rose 3 percent Tuesday to 15.75. The measure of market turbulence known as the VIX is higher for a third day, paring a monthly decline that’s on pace for its biggest since February.

Energy Slumps

Nine of the S&P 500’s 10 main industries were lower, with energy companies sliding the most for a second day. Oil continued its pullback to a two-month low before government data that’s forecast to show U.S. crude stockpiles increased.

Consol Energy Inc. tumbled 21 percent, the most in almost seven years to stretch its lead as the benchmark’s worst performer this year. The coal and natural gas producer reported a wider-than-expected quarterly loss. Chesapeake Energy Corp. lost 6.6 percent and Anadarko Petroleum Corp. sank 5.4 percent before its results after the market closes. Chevron Corp. fell for a third day, down 1.7 percent, and has retreated in six of the last seven sessions.

Ford’s slide was its biggest since August, halting its longest rally in more than 17 years as higher taxes reduced the payoff from its aluminum-bodied F-Series pickups. General Motors Co. lost 2.4 percent, and parts supplier BorgWarner Inc. sank 2.5 percent.

Rent-A-Center Inc. plunged 29 percent, on track for its biggest drop ever, after cutting its profit forecast and writing down outdated smartphone inventory. The Texas company is facing slowing sales in cities that rely on the oil industry, as well as sluggish demand for computers and tablets. Aaron’s Inc., another rent-to-own chain, dropped 8.7 percent.

An index of S&P 500 transportation stocks headed toward its biggest drop in two months, dragged lower by declines of more than 3.1 percent in UPS and Union Pacific Corp. UPS fell the most in nine weeks as a drop in U.S. ground shipments hurt third-quarter sales. Kansas City Southern and CSX Corp. decreased at least 4 percent.

Trucking stocks dropped amid concern that slowing U.S. industrial activity is hurting cargo demand. XPO Logistics Inc. and YRC Worldwide Inc. each fell more than 10 percent. Truck makers were also under pressure, with Paccar Inc. down 6.5 percent after third-quarter sales missed estimates. Navistar International Corp. slumped 17 percent to an 18-year low. Engine maker Cummins Inc. dropped 8.6 percent, the most in two years, after quarterly profit disappointed and the company lowered its sales outlook.

Biotechs Rise

Biotech shares led gains among health-care companies which advanced for a third day. Biogen Inc. and Allergan Plc added more than 4.5 percent. Pfizer and Bristol-Myers rallied at least 2.2 percent. Pfizer’s profit beat estimates after sales of Lyrica, a pain drug, and Ibrance, a breast cancer treatment, outperformed expectations. Bristol-Myers reported better-than-expected revenue from its oncology drug Opdivo and the start of U.S. sales for its hepatitis C drug.

Rite Aid Corp. soared 41 percent after the Wall Street Journal reported Walgreens Boots Alliance Inc. is close to a deal to acquire the drugstore chain. Walgreens rallied 6 percent to its highest since Aug. 6, while competitor CVS health Corp. gained 1.9 percent.

Coach Inc. headed for its highest level since August, rising 4.5 percent after earnings topped analysts’ estimates, driven by new styles and fewer discounts, the company said. While North American comparable-store sales declined 9.5 percent from a year earlier, that was an an improvement from the fourth quarter, when same-store sales fell 19 percent.

Source: Bloomberg