Crude slump weighs on energy shares

14 January 2015, Lagos – United States stocks fell, after the Standard & Poor’s 500 Index posted its first back-to-back weekly retreat since October, as the continuing selloff in crude pulled down energy shares before the start of corporate earnings.

Energy shares tumbled 2.8 percent, the most among 10 groups in the S&P 500, (SPX) as crude dropped 4 percent. Tiffany & Co. lost 14 percent after the jewelry retailer lowered its annual forecast after sales declined during the holiday. SanDisk Corp. fell the most in almost six years after reporting preliminary results below its own estimates.

The S&P 500 slid 0.8 percent to 2,028.43 at 4 p.m. in New York. Losses accelerated after the market’s open as the benchmark gauge fell through its average price for the past 50 days. The Dow Jones Industrial Average lost 93.86 points, or 0.5 percent, to 17,643.51. The Nasdaq 100 Index slid 1 percent as technology shares retreated.

“When you get the kind of 1 percent moves we’ve had in both directions, there’s definitely still uncertainty out there and that’s usually not the sign of a healthy market,” Matt Maley, an equity strategist at Miller Tabak & Co. in Newton, Massachusetts, said by phone. “With earnings kicking off the question is going to be how much of the decline in energy company earnings is already priced in.”

The index lost 0.7 percent last week, following a 1.5 percent drop the prior week, amid concern over sliding oil prices, falling U.S. wages and that the European Central Bank’s bond-buying plan won’t be enough to combat deflation.

Investors were whipsawed during the week as the S&P 500 had up and down swings of more than 1 percent on three separate days, with an average daily move of 1.3 percent for the full week. The volatility stands in contrast to 2014, when the gauge fluctuated 0.53 percent on average each day for the calmest year in U.S. stocks since 2006.

The S&P 500 has fallen 3 percent since a record in December amid sliding oil prices. That’s prompted analysts to cut their profit forecasts for companies in the index, with reductions spread across nine of 10 industry groups and energy producers seeing the biggest cut.

“Markets have been volatile because they still haven’t made up their mind whether lower oil prices are positive for consumers and the overall world economy or whether it means more financial stress,” Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich, said by telephone. “This has been the tug of war between the two camps. We think it’ll be positive for consumption. We’re overweight in the U.S. this year.”

Falling oil prices have kept damped inflation, leaving it below the Federal Reserve’s target even as the economy shows signs of accelerating.

Fed Bank of San Francisco President John Williams, who will vote on policy this year, said raising interest rates in June would be a close call amid “strong momentum” in the labor market and weaker wage gains.

Fed Chair Janet Yellen told reporters last month not to expect the central bank to raise rates before the end of April, leaving expectations intact for a move around mid-year.

Profit at companies in the benchmark gauge probably climbed 2 percent in the final quarter of 2014, and 2.8 percent this period, analysts forecast. That’s down from October estimates of 8.1 percent and 9.2 percent, respectively.

Alcoa Inc. will post fourth-quarter earnings after the market closes today, unofficially kicking off the reporting season. Later this week, investors will weigh reports for clues on the health of the world’s largest economy, including retail sales, manufacturing in the New York region and industrial production.

Schlumberger Ltd., which posts earnings this week, fell 3.9 percent. The world’s largest oilfield-services provider was cut to neutral, the equivalent of a hold, from buy at Goldman Sachs Group Inc.

Other energy stocks also retreated after Goldman reduced its forecasts for global benchmark crude prices, predicting inventories will increase over the first half of this year. Oil needs to trade near $40 a barrel in the first half of this year to curb shale investments, the bank said.

“Many people are fearful that this is a sign of deflation coming,” Rob Lutts, chief investment officer at Salem, Massachusetts-based Cabot Wealth Management Inc., said via phone. “There’s a little bit more fear in the air and it revolves around things we can’t control, including overseas economies and concern over how fast they’re growing.”

Exxon Mobil Corp. and Chevron Corp. plunged at least 1.8 percent today to lead declines in the Dow. Forty-two of the 43 members in the S&P 500 Energy Index retreated, as the gauge slumped 2.8 percent. Transocean Ltd. lost 3.7 percent for a 10th straight drop and the lowest level since 1995.


In Europe, oil-and-gas producers tumbled 1.3 percent for the second-biggest drop in the Stoxx Europe 600, while an index of developing-nation energy companies slid 1.9 percent to pace losses in the MSCI Emerging Markets Index.

Technology companies in the S&P 500 declined 1.2 percent as SanDisk lost 14 percent. The maker of data-storage chips for mobile devices reported preliminary quarterly revenue that trailed its own forecast on lower sales of retail and flash-technology products.

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