CMG Chipotle Mexican Grill Inc

By Ellie Ismailidou and Victor Reklaitis, MarketWatch

Dovish Fed speakers, weak data boost sentiment; market shrugs off drop in oil prices

U.S. stocks pared sharp opening losses to finish nearly unchanged on Monday, breaking the weeks-long correlation with oil prices.

The main indexes briefly turned positive after a late-afternoon rally, but finished roughly flat, despite a 6% drop in oil .

The S&P 500 closed less than a point lower, or less than 0.1%, at 1,939. The Dow Jones Industrial Average reversed a 160-point loss to close 17.12 points, or 0.1%, lower at 16,449. Meanwhile, the Nasdaq Composite outperformed other indexes and ended the day up 6.41 points, or 0.1%, at 4,620.

Wall Street opened deep in negative territory on Monday, with sentiment hit by renewed declines in oil futures, (http://www.marketwatch.com/story/oil-sags-on-china-data-production-cut-doubts-2016-02-01) following a 4.4% gain last week, amid fresh signs of sluggishness in China's economy (http://www.marketwatch.com/story/china-manufacturing-numbers-indicate-sluggishness-2016-01-31)and dimming prospects of a coordinated oil production cut by key producers.

But sentiment for stocks shifted after weak U.S. manufacturing data were taken as an indication that the Federal Reserve will hold off on its plans to raise interest rates later this year.

The stock rally gained steam after Fed Vice Chairman Stanley Fischer suggested the market's expectations of barely any interest rate increases this year could turn out to be right (http://www.marketwatch.com/story/feds-fischer-says-markets-might-be-right-after-all-2016-02-01). Last month, Fischer was more hawkish, saying that the Fed thought the market expectations, at the time, for two rate increases in 2016 were "too low."

"[Fischer] has always been on the hawkish side. So the fact that he made these comments has even more significance for the market," said Kent Engelke, chief economic strategist at Capitol Securities Management. The comments, along with the sluggish manufacturing data helped "turn the market," Engelke added.

U.S. manufacturing activity contracted for the fourth straight month (http://www.marketwatch.com/story/weak-tone-to-manufacturing-report-from-ism-in-january-2016-02-01), albeit at a slower pace in January than economists' expectations. The Institute for Supply Management said its manufacturing index rose to 48.2% in January from 48%, above forecasts but still below the reading of 50% that signals expansion.

The PCE index, the Fed's preferred inflation gauge, fell 0.1% in December and 1.4% over the past 12 months, remaining well below the Fed's 2% target (http://www.marketwatch.com/story/consumer-spending-goes-nowhere-in-december-2016-02-01).

"The lack of inflationary pressure in the PCE deflator measures of prices is another reason why the Fed could stand pat in March," said Paul Ashworth, chief U.S. economist at Capital Economics, in a note.

The volatility and mixed reactions following the soft data showed that "a lot of investors are confused, and understandably so," said Diane Jaffee, a portfolio manager at TCW.

"We haven't been in a normal-interest-rate environment since the crisis," Jaffee said. She compared the Fed's stance toward market volatility to a parent helping a toddler get on his feet. "As the baby takes steps and stumbles, you don't know whether to rush to hold them up or let them keep walking."

The market-implied probability of a rate increase in March was at 14% Monday afternoon, down from 21% late morning, according to the CME Group's FedWatch tool (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)that tracks Fed-fund futures prices.

Also read:Wall Street sees shrinking likelihood of any rate increase in 2016 (http://www.marketwatch.com/story/wall-street-sees-shrinking-likelihood-of-any-rate-hike-in-2016-2016-01-29)

The energy sector was the worst performer on the S&P 500 Monday, down 1.9% on the day, followed by financials, down 0.6%. Energy names were among the worst performers on the Dow industrials, led by Exxon Mobil Corporation (XOM), which closed down 1.7%.

Read: A big reason it is too late for OPEC to cut production (http://www.marketwatch.com/story/a-big-reason-its-too-late-for-opec-to-cut-production-2016-02-01)

Google parent Alphabet Inc. (GOOGL) (GOOGL)reported after the bell (http://www.marketwatch.com/story/alphabet-stock-surges-on-huge-google-earnings-beat-2016-02-01). Investors were awaiting a report from toy maker Mattel (MAT).

Read more: Earnings may lift Google parent Alphabet's market value above Apple's (http://www.marketwatch.com/story/alphabet-earnings-could-push-google-parent-past-apple-as-worlds-most-valuable-company-2016-01-29)

Of the 207 companies that have reported so far, 142 have beat analysts' estimates, which equates to a 69% beat rate, better than the historic average of 66%, according to S&P Capital IQ. But aggregate S&P 500 earnings are estimated to fall 5.87% year-over-year.

On Friday, the S&P 500 gained 2.5% (http://www.marketwatch.com/story/us-stocks-dow-futures-leap-after-surprise-boj-move-joining-in-global-rally-2016-01-29) for its biggest daily gain since September, with credit going to a surprise Bank of Japan stimulus effort. The benchmark added nearly 2% last week, yet finished down 5.1% in January.

Read: Bank of Japan's negative rate decision is a mark of 'desperation' (http://www.marketwatch.com/story/critics-slam-bank-of-japans-negative-interest-rate-move-2016-01-29)

Other markets:Weak Chinese manufacturing data (http://www.marketwatch.com/story/china-manufacturing-numbers-indicate-sluggishness-2016-01-31)drove China's Shanghai Composite down by 1.8% (http://www.marketwatch.com/story/nikkei-soars-for-second-day-following-negative-rate-cut-2016-01-31). But Japan's Nikkei closed 2% higher, adding to its 2.8% surge on Friday when the Bank of Japan surprised investors by pushing interest rates into negative territory (http://www.marketwatch.com/story/japan-follows-europe-into-negative-interest-rates-2016-01-29). The Stoxx Europe 600 (http://www.marketwatch.com/story/european-stocks-start-february-in-the-red-as-manufacturing-data-soften-2016-02-01) and a key dollar index lost ground, while gold futures gained. Treasury yields inched higher, coming off a nine-month low.

Individual movers: Shares of Chipotle Mexican Grill, Inc. (CMG) jumped 4.3% after the Centers for Disease Control and Prevention said E. coli outbreaks "appear to be over." (http://www.marketwatch.com/story/cdc-says-e-coli-outbreaks-at-chipotle-are-over-2016-02-01)

Aetna (AET) closed up 1.4% after the health insurer posted better-than-expected quarterly earnings (http://www.marketwatch.com/story/aetna-profit-jumps-more-than-forecast-in-fourth-quarter-2016-02-01) ahead of the opening bell.

Shares in natural-gas company Questar Corp. (STR) jumped 22.5% following news that utility company Dominion Resources Inc. (D) plans to buy it for $4.4 billion (http://www.marketwatch.com/story/dominion-resources-agrees-to-buy-questar-in-44-billion-deal-2016-02-01). Dominion shares closed down 0.9%.

Economic news: Consumer spending was flat in December as Americans mostly pocketed their income gains, the Commerce Department said Monday. Outlays were unchanged even though incomes rose 0.3%--consumers saved more instead. The savings rate rose to 5.5% from 5.3%, to match a three-year high.

Construction spending rose 0.1% in December (http://www.marketwatch.com/story/construction-spending-edges-up-01-in-december-2016-02-01), below the 0.6% gain forecast.

(END) Dow Jones Newswires

February 01, 2016 16:24 ET (21:24 GMT)

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