By Alexandra Scaggs
U.S. stocks fell Thursday, as a pair of disappointing bank
earnings reports weighed down financial shares.
The Dow Jones Industrial Average declined 76 points, or 0.4%, to
17351.
The S&P 500 lost 15 points, or 0.8%, to 1996. The index was
on track for its fifth-straight decline and second five-session
losing streak since Dec. 29, after more than a year without
one.
The Nasdaq Composite Index dropped 59 points, or 1.3% to
4581.
Corporate earnings were a main focus Thursday, traders said. The
financial sector of the S&P 500 lagged behind the broader
index, recently down 1.2%, after two major U.S. banks reported
results that fell short of Wall Street's forecasts.
"[Investors] are looking at the valuations of certain sectors
and stocks, and saying it's time to rotate into safer names," said
Brian Fenske, head of sales trading at brokerage ITG in New
York.
Biotechnology stocks were among the hardest hit sectors, with
the Nasdaq Biotechnology Index falling 2.2%. The index is trading
at 31.5 times its earnings from the last 12 months, according to
FactSet, 23% above its 10-year average of 25.7. In comparison, the
S&P 500 is trading at a valuation of 16.7, which is 14% above
its 10-year average.
Bank of America Corp. dropped 5.1% after the bank said its
fourth-quarter profit fell 11%, hurt by lower trading revenue.
Results missed expectations.
Citigroup Inc. fell 4% after it said its fourth-quarter profit
plunged 86% from a year earlier, weighed down by a massive legal
charge and disappointing trading revenue.
Best Buy Co. slumped 13% after the retailer warned it will boost
spending on efforts to fuel growth, which should start pressuring
earnings next quarter.
Investors have been watching earnings reports and moves in
global commodity and bond markets to get a read on economic growth.
They fret that a continuing slide in oil and metals prices, paired
with a rally in government bond prices, is signaling a global
slowdown driven by Europe and Asia.
"There [are] a lot of crosscurrents right now that...are
providing conflicting signals," said Matthew Fruhan, who manages
the $3.2 billion Fidelity Large Cap Stock Fund. Those "create
angst," he said.
Oil prices fell Thursday, after an early jump helped support a
stock-market advance at the start of trading. U.S. crude-oil
futures fell 4.6% to $46.25 a barrel and have lost nearly 60% since
last June. Energy stocks in the S&P 500 fell 0.8%. The sector
has dropped 26% since oil started its decline.
Mr. Fruhan said some companies' profits could be dented by the
recent oil-price declines and gains in the U.S. dollar. But he is
focusing mainly on their outlook for earnings over the long term.
And while investors fret about European growth, he favors large
multinational firms in the region, which sell to many of the same
markets as U.S.-based firms, but trade at lower valuations.
Investments seen as defensive bets rose. Utilities and
consumer-staples stocks outperformed broader indexes, rising 0.7%
and 0.3%, respectively. And Treasury prices climbed, pushing the
yield on the 10-year note down to 1.763% from 1.833% on Wednesday.
The recent decline in Treasury yields has surprised some investors,
since most expect the Federal Reserve to raise short-term interest
rates this year.
The price of gold, also seen as a safe-haven asset, rose 2.5% to
$1264.70 an ounce. Shares of metals and mining companies rose 1%.
Goldcorp rallied 11%, and Newmont Mining jumped 9.3%.
Major U.S. stock benchmarks swung between gains and losses in
early trading, then turned lower. Thursday's turbulence follows
multiple intraday swings this month, amid a continuing rise in
volatility. The CBOE Volatility Index, which measures expectations
for swings in the S&P 500, has closed above its 10-year average
of 20 for two sessions in a row, as of Wednesday. It rose further
Thursday, climbing 5.8% to 22.73.
Many analysts say stocks should rise in 2015, but the path up
will be bumpier. That expectation has prompted Danilo Kawasaki,
co-founder of Gerber Kawasaki Wealth & Investment Management,
to sell some technology and biotech stocks in recent months. Both
sectors have outperformed broader markets over the past year and
are seen as riskier.
"We feared that January would be volatile," said Mr. Kawasaki,
whose firm manages about $300 million. He is putting that cash into
Treasurys, bond funds and annuities, he said.
"It's very tricky right now," he said. "The stock market is
hitting all-time highs, and the bond market is at a point where we
could see rates go up and prices get hammered, so we have to be
very tactical."
Earlier, markets were rattled after Switzerland's central bank
scrapped its policy of capping the Swiss franc at 1.20 to the euro.
The Swiss National Bank has intervened in markets since September
2011. In the wake of the SNB's move, the euro dropped as low as
0.85 francs. It later rose to settle around 1.05, a loss of about
30%.
Still, European stocks rose broadly, with the Stoxx Europe 600
up 2.6%. Germany's DAX Index rose 2.2%, France's CAC 40 gained 2.4%
and Italy's FTSE MIB rallied 2.4%.
Write to Alexandra Scaggs at alexandra.scaggs@wsj.com
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