Equity sell-off on hold, awaiting Fed minutes

October 8, 2014 05:33 AM

U.S. stocks fluctuated, after the Standard & Poor’s 500 Index fell to an eight-week low, as investors weighed corporate results before the Federal Reserve releases minutes from its last meeting.

Costco Wholesale Corp. gained 1.8 percent after saying profit topped forecasts. Yum! Brands Inc. added 2.4 percent after posting profit that exceeded estimates and a forecast that missed projections. Symantec Corp. rallied 2.2 percent after people familiar with the matter said it is exploring a split. Monsanto Co. rose 1.1 percent after reporting results.

The S&P 500 dropped less than 0.1 percent to 1,934.29 at 9:56 a.m. in New York. The Dow Jones Industrial Average gained 1.98 points, or less than 0.1 percent, to 16,721.37. Trading in S&P 500 stocks was in line with the 30-day average at this time of day.

“This may not be the correction that everyone’s looking for,” Martin Leclerc, founder of Bryn Mawr, Pennsylvania-based Barrack Yard Advisors, LLC, said in a phone interview. He helps oversee about $1 billion. “The economy isn’t gangbusters but it doesn’t look like it’s going into a recession and and it appears from the data points that it’s going to continue to chug along, which is the long and short of the bull case.”

The S&P 500 slid 1.5 percent yesterday as the International Monetary Fund cut economic-growth forecasts and warned of “frothy” equities. That took its loss from a Sept. 18 record to 3.8 percent.

Small Caps

The Russell 2000 Index of small companies had its worst day since July 31, with a 1.7 percent drop. The gauge has plunged 11 percent since a March record. The index was little changed today.

The Federal Open Market Committee will release minutes from its Sept. 16-17 meeting at 2 p.m. Washington time. In a statement following that gathering, policy makers renewed their pledge to keep interest rates near zero for a “considerable time” after ending bond purchases this month. They also projected a steeper increase in borrowing costs next year.

Chicago Fed President Charles Evans, a voting member of the FOMC next year, said today that officials should be “exceptionally patient” before they start to raise rates.

U.S. unemployment remains too high and a stronger dollar could hurt the country’s exports while preventing inflation from rising to the Fed’s goal, Evans said in remarks prepared for delivery in a speech in Plymouth, Wisconsin.

Evans’s comments were his first in public since data released on Oct. 3 showed that unemployment unexpectedly fell to 5.9 percent in September from 6.1 percent the month before.

Overall Weakness

“The commentary by the Fed will outweigh any short-term moves in the market,” Nick Skiming, who helps oversee about $10 billion at Jersey, Channel Islands-based Ashburton Ltd., said by phone. “Given the overall weakness in markets, the Fed may temper some comments. U.S. earnings also kick off today and, on a comparative basis from a year earlier, should be reasonably good.”

Investors will also seek clues on the strength of the U.S. economy from corporate results, with Alcoa Inc. unofficially starting the earnings season after the close of markets today. Profit at companies in the S&P 500 rose 4.9 percent in the July- September period, according to the average estimate of analysts in a Bloomberg survey.

The benchmark index has fallen 3.3 percent in the past month, the worst pre-earnings performance since 2009. The gauge has averaged a 2.2 percent gain in the month before earnings start since the bull market began.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index fell 1.3 percent to 16.97 today. The gauge known as the VIX jumped 11 percent yesterday to the highest since March.

Eight of the 10 main S&P 500 groups climbed today. Utilities rose 0.7 percent and health-care stocks added 0.4 percent to pace gains.

Costco rose 1.8 percent to $127.51. The largest U.S. warehouse-club chain posted fiscal fourth-quarter profit that topped analysts’ estimates as sales at its established stores increased.

Yum gained 2.4 percent to $71.41. The owner of the KFC and Taco Bell fast-food chains reduced its forecast for profit this year as another food-supplier probe hurts sales in its China division. Adjusted profit in the last quarter topped estimates.

Symantec gained 2.2 percent to $23.70 after people familiar with the matter said the software company is in advanced talks to break up its business into two entities -- one offering security programs and another focusing on data storage.

Monsanto advanced 1.1 percent to $108.97. The world’s largest seed company forecast fiscal 2015 earnings that trailed analysts’ expectations as tumbling grain prices leave farmers with less to spend.

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