Stock rally pauses in front of Fed minutes

February 18, 2015 09:15 AM

U.S. stock-index futures fell, after the Standard & Poor’s 500 Index rose to a record Tuesday, as data showed a drop in housing starts and wholesale prices before the release of minutes from the last Federal Reserve meeting.

Exxon Mobil Corp. declined 1.3 percent after Warren Buffett’s Berkshire Hathaway Inc. exited a $3.7 billion investment in the company. Hilton Worldwide Holdings Inc slipped 2.2 percent after posting earnings and a forecast that trailed estimates. Actavis Plc rose 2.1 percent after the drugmaker raised its full-year forecast.

Contracts on the S&P 500 expiring in March dropped 0.2 percent to 2,092.2 at 9:05 a.m. in New York, after the benchmark index closed at a record Tuesday. Dow Jones Industrial Average futures lost 28 points, or 0.2 percent, to 17,973.

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.

“We have been here before on Greece, thinking a deal has been reached, so the market is waiting for a confirmation,” said Michael Ingram, a market strategist at BGC Brokers LP in London. “The market is getting more comfortable with a scenario of a Fed hike in June rather than in the fourth quarter, but it remains rather cautious ahead of the FOMC minutes.”

 

Fed’s Stance

In a statement after its January meeting, the Fed reiterated the previous month’s stance that the committee would be patient in deciding when to begin raising interest rates, and said job gains were strong. Several Fed officials have said the U.S. central bank’s first interest-rate increase in almost a decade may come as soon as June. Minutes from the meeting are due at 2 p.m. in Washington.

Data today 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 5.3 percent rally in February after the worst month in a year in January has evened out to a 2 percent gain for 2015, trailing most developed markets.

Marriott International Inc. and Duke Energy Corp. are among 11 S&P 500 companies reporting quarterly results today. Of the more than 80 percent of index members that have reported so far this season, 75 percent beat analysts’ estimates, while 57 percent topped sales projections, data compiled by Bloomberg show.

 

Boston Scientific

Boston Scientific jumped 11 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.

Fossil Group Inc. tumbled 15 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.

Exxon Mobil lost 1.3 percent. Buffett’s Berkshire Hathaway exited a $3.7 billion investment in the company amid a slump in oil prices. Crude has fallen by about half since June as U.S. production surged and the Organization of Petroleum Exporting Countries resisted output cuts.

 

Hedge Funds

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. Anticipation of more stimulus from the European Central Bank, along with a weaker euro and expectations of solid earnings, has had an affect on sending money overseas.

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.

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