U.S. Stocks Decline as Energy Rebound Fades

 
U.S. stocks slipped as gains in energy and consumer companies faded, while Allergan Plc and Pfizer Inc. retreated amid their record $160 billion merger deal.
The Standard & Poor’s 500 Index fell 0.3 percent to 2,083.23 at 2:26 p.m. in New York, after rising 3.3 percent last week, the most since last December. The Dow Jones Industrial Average lost 65.14 points to 17,758.67. The Nasdaq Composite Index declined 0.3 percent. The Russell 2000 Index increased 0.3 percent, bolstered by gains in health-care and consumer discretionary shares.

“The market has moved past the idea of whether the Fed will hike in December,” said Michael Gayed, chief investment strategist who helps to manage $200 million at Pension Partners LLC in New York. “It’s going to be a fairly slow week in terms of volume, but it could be a fairly big week for small-cap and mid-cap names. We could see some allocation into those stocks, and we’re seeing that today with the Russell 2000 handily outperforming the S&P 500.”

The main U.S. equity gauge surged last week after Federal Reserve officials signaled the economy is strong enough to withstand the first rate increase since 2006, and investors grew more comfortable with the notion that borrowing costs may soon be higher. Stocks have gained in seven of the past eight weeks, boosted by raw-material, industrial and technology shares, taking the S&P 500 to within 2 percent of a record set in May.
San Francisco Fed President John Williams said on Saturday there’s a “strong case” for a rate increase in December assuming U.S. economic data continues to be encouraging. Fed Governor Daniel Tarullo said today in an interview on Bloomberg Television economic data received since the central bank met in September had been mixed, as continued low inflation tempered his enthusiasm over progress made this year in lowering unemployment.
“As always with the Fed, we see Fed governors speak on both sides,” said Tim Ghriskey, who helps oversee $1.5 billion as managing director and chief investment officer at Solaris Asset Management. “It’s a way for them to calm the markets and get the markets used to any potential outcome. Eventually the Fed’s going to raise and it’s very likely to be somewhere in the near-term.”

Home Sales

A report today showed sales of previously owned homes retreated in October from the second-highest level since 2007 as lean inventory limited momentum in residential real estate. Recent data have bolstered the case for raising borrowing costs for the first time since 2006, with traders now pricing in a 74 percent probability that the Fed will move next month. The Commerce Department’s second reading on gross domestic product for the third quarter is due tomorrow.
The earnings season is drawing to a close, with almost all companies in the S&P 500 having reported. Of those, 75 percent beat earnings estimates, while only 44 percent exceeded sales forecasts. Analysts project profits for index members dropped 3.8 percent in the third quarter, compared with for a 7.2 percent decline at the start of the season.