By Dan Strumpf
Stocks wavered around the unchanged mark in late afternoon trade
Monday, as investors paused following the biggest weekly gains for
major indexes in more than a year.
The Dow Jones Industrial Average recently rose a point to 16807.
The S&P 500 index eased four points, or 0.2%, to 1961. The
Nasdaq Composite Index declined one point to 4483.
Traders said much of the day's action surrounded energy shares,
which posted the big declines amid sharp swings in the price of
crude oil. The S&P 500 Energy sector index recently declined
2%. Shares of major producers fell, with Chevron Corp. down 0.6%
and Exxon Mobil off 1%.
Market activity elsewhere was relatively light, with many
investors holding off on placing big trades ahead of high-profile
economic events later in the week, including the latest policy
announcement from the Federal Reserve due Wednesday and a litany of
third-quarter earnings reports. This week alone, 158 companies in
the S&P 500 are due to report third-quarter results, according
to FactSet.
"This week is starting similar to other weeks, which is, 'Hey,
let's wait for the macro data points and the earnings to roll in,'"
said Brian Fenske, head of sales trading at brokerage ITG.
Despite recent swings in stocks, long-term investors remain
largely optimistic on the outlook for U.S. stocks for the remainder
of the year, citing improving corporate earnings and steady
economic growth. So far, 213 companies in the S&P 500 have
reported third-quarter earnings, and the index is on track for 5.6%
earnings growth from a year ago, according to FactSet. That is
higher than the 4.5% earnings growth expected before the reporting
season began.
"The U.S. is the place to be right now," said Mike Serio,
regional chief investment officer at Wells Fargo Private Bank,
which manages $179 billion. "We're seeing money continue to come
into the U.S., continue to go into our stock market and continue to
go into our bonds."
Mr. Serio said the bank is keeping client portfolios focused on
U.S. companies, particularly those likely to benefit from an
expanding economy, like industrial and information-technology
firms.
Monday's pause comes on the heels of a strong week for stocks.
The S&P 500 jumped 4.1% last week, marking its largest weekly
percentage gain since January 2013. The Nasdaq Composite increased
5.3%, the biggest weekly percentage gain since December 2011.
European markets pared their steepest losses, but were widely
lower. The Stoxx 600 Europe index closed with a 0.6% loss, despite
news that the European Central Bank's stress tests showed that all
but 13 of the region's leading banks have enough capital to survive
another period of economic turbulence. The stress tests are part of
an effort to reassure investors that European lenders are back on
track.
The decline comes amid persistent skepticism among investors
about the health of Europe's banks and the ability of the ECB to
cope with a broader economic slowdown, said Michael O'Rourke, chief
market strategist at JonesTrading.
"You could say every bank in Europe is healthy and I'm pretty
sure 99 out of 100 investors would doubt that," he said.
Brazilian markets fell sharply after elections concluded Sunday
showing President Dilma Rousseff winning a second term by a narrow
margin. Investors worry that the victory could prolong the
country's economic stagnation. The Ibovespa, the country's main
stock market index, was recently down 2.8%.
In commodity markets, crude-oil futures fell as much as 1.9%
intraday, spurring a sharp selloff in energy shares. Though energy
stocks remained lower, futures recovered most of their losses by
afternoon. The December Nymex contract settled lower by a penny to
$81 a barrel
Michael Antonelli, sales trader at Robert W. Baird, said
investors are struggling with the implications of the recent slide
in oil prices. While lower oil prices are generally a benefit to
consumers and companies that consume large amounts of fuel, the
retreat has been accompanied by signs of weaker economic growth
globally.
"Everybody is watching crude for some sort of clue," he said.
"At some point, lower crude prices are a boon...At this point, the
deflationary impulse and the slower growth seems to be winning the
argument."
Gold futures lost 0.2% to $1229.10 an ounce.
In economic news, U.S. pending sales of existing homes increased
0.3% to a seasonally adjusted index level of 105 in September from
August, the National Association of Realtors said Monday. An index
level of 100 is considered an average level of contract activity.
The increase was smaller than expected.
Later in the week, the Federal Reserve is due to hold a two-day
policy meeting that concludes Wednesday, with investors eagerly
anticipating further guidance on the pace of interest-rate hikes.
On Thursday, investors will get an update on third-quarter U.S.
economic growth, expected to show growth of 3.1%.
"This is a pivotal week overall," Mr. O'Rourke said. "The amount
of news we have coming out should fuel volatility in both
directions."
The yield on the 10-year Treasury note fell to 2.257%. Yields
fall as prices rise.
In earnings news, Merck Co. reported earnings that beat
analysts' expectations, but revenue fell short. The pharmaceutical
giant tightened its earnings outlook for the year by three cents on
each end, and is now expecting $3.46 to $3.50 a share. It also cut
the top end of its revenue forecast and now expects $42.4 billion
to $42.8 billion for the year. Shares fell 2.1%.
Valeant Pharmaceuticals International Inc. said it is prepared
to raise its offer for Allergan Inc. to at least $200 a share.
Allergan also reported third-quarter earnings that beat
expectations and raised its guidance for the year. Shares of
Allergan eased 1%.
Shares of Twitter Inc. fell 2.9%. The social-media company is
due to report earnings after the closing bell
Write to Dan Strumpf at daniel.strumpf@wsj.com