By Alexandra Scaggs
U.S. stocks erased sharp gains Tuesday, though technology shares
held up better than broader indexes.
Stocks turned lower in afternoon trading, after a steep morning
rally. Traders pointed to worries about the outlook for European
Central Bank policy, though the U.S. declines started after
European stocks closed broadly higher. Investors broadly expect the
ECB to introduce new stimulus, and traders are closely following
the outlook for European policy makers.
"The expectation is clearly that they're going to" buy bonds,
said Ian Winer, head of equities trading at Wedbush Securities. So
any change in expectations "would certainly be an issue."
The Dow Jones Industrial Average fell 70 points, or 0.4%, to
17568. The S&P 500 index dropped 13 points, or 0.6%, to
2015.
U.S. stocks initially rallied sharply in morning trading, with
the Dow gaining as much as 282 points, on the heels of sharp gains
in Europe. European markets have set the tone for U.S. trading in
recent sessions, strategists say, as investors look ahead to an ECB
meeting on Jan. 22.
"The ECB is just as important to U.S. stocks right now as the
Fed," said Michael Purves, chief global strategist with Greenwich,
Conn.-based brokerage firm Weeden & Co. "More and more people
are expecting them to announce [stimulus] in the form of sovereign
bond purchases."
The technology sector still outperformed, with the tech-heavy
Nasdaq Composite Index down 20 points, or 0.4%, to 4645. Apple Inc.
and Amazon.com Inc. rose 0.6% and 1.4%, respectively, after
upgrades from Wall Street analysts.
"There's been volatility and pullbacks in a lot of the Internet
[stocks], so investors are looking to pick their spots" ahead of
earnings season, said Brian Fenske, head of sales trading at
brokerage ITG in New York.
China's exports rose by a stronger-than-expected 9.7% in
December, according to official data released Tuesday, on the back
of robust demand from the U.S., Europe and Southeast Asia.
Demand turned higher for the 10-year U.S. Treasury note as
investors rotated into riskier investments, pushing the yield on
the 10-year note down to 1.888% from 1.909% on Monday.
Intel was among the gainers in the Dow, rising 0.3% ahead of its
earnings report slated for Thursday. Analysts expect the company to
report earnings growth of 26%, according to FactSet. Investors are
broadly turning their attention to fourth-quarter earnings season,
which unofficially kicked off with Alcoa's earnings on Monday.
"People feel like fundamentals are solid," said ITG's Mr.
Fenske. "Some of the risks out there are [already] talked about...
[which] gets priced in pretty quickly" to stock prices.
After some early reports, companies in the S&P 500 are on
pace to report fourth-quarter earnings rose 0.9% from last year.
That is slightly below initial forecasts for 1.1%, according to
FactSet, which would be the weakest quarter of profit growth since
the third quarter of 2012.
A months-long slump in oil prices is expected to weigh on
earnings, with analysts forecasting the sector's fourth-quarter
earnings will decline 19% from last year. U.S. stocks have seesawed
in the first several sessions of 2015, largely alongside the price
of oil. As of Monday's close, the S&P 500 was down about 3%
from its record close.
Crude-oil prices fell further Tuesday, recently down 1.6% to
$45.37 a barrel.
In other corporate news, Alcoa's shares slipped 2.1%, despite
reporting better-than-expected profits. It cited strong growth in
its aerospace and automotive businesses, and a rebound in prices
for raw aluminum.
-Saumya Vaishampayan contributed to this article.
Write to Alexandra Scaggs at alexandra.scaggs@wsj.com
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