By Alexandra Scaggs
U.S. stocks closed lower after posting their largest intraday
swing since October, amid fresh concerns about the future of
Europe's economy.
Stocks briefly made a sharp decline in afternoon trading on
Tuesday, with the Dow Jones Industrial Average making its biggest
swing within a single session since Oct. 15. It rose as many as 282
points in morning trading, before sliding as many as 142 points to
its low after 2 p.m. It closed down 27.16 points, or 0.2%, to
17613.68.
Traders pointed to shifting views on the outlook for European
Central Bank policy as one driver of market moves. Investors
broadly expect the ECB to introduce new stimulus in coming months,
so investors are closely following developments in the region,
traders said. The U.S. stock declines started after European stocks
closed broadly higher, however.
"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 S&P 500 index dropped 5.23 points, or 0.3%, to 2023.03.
The Nasdaq Composite Index fell 3.21 points, or 0.1%, to
4661.50.
A monthslong oil-price decline and uncertainty about stimulus in
Europe have made investing stocks a riskier proposition, said Paul
Zemsky, who helps manage about $30 billion in global investments
for Voya Investment Management. Crude-oil futures are down nearly
60% since June, and on Tuesday fell 0.4% to $45.89 a barrel.
Valuations on U.S. stocks will probably need to rise more for
the market to provide solid returns this year, Mr. Zemsky said. But
that could be tough if investors remain worried about global
growth, he added, since stocks are trading above long-term average
levels.
"It's hard to get valuations to rise if you have all this
uncertainty," he said. Still, he is bullish on U.S. stocks, since
he considers them a better option than bonds or international
shares.
The S&P 500 is trading at 16.9 times its earnings from the
past year, according to FactSet, above its 10-year average of
14.6.
Traders say they expect more steep swings in U.S. markets in
2015, amid a continuing oil-price plunge and an expected rise in
U.S. short-term interest rates this year. That has driven up the
Chicago Board Options Exchange's Volatility Index.
"If you look at the volatility we've had just in the past couple
of months, it's been pretty striking," said Joe Spinelli, head of
Americas single-stock trading at Deutsche Bank.
Scott Wren, senior stocks strategist for Wells Fargo, was
telling the bank's financial advisers to recommend buying stocks
during Tuesday's steep drop.
"My phone is ringing more from my financial advisers, who have
clients calling them, and they're getting worried," he said.
"But...you need to take advantage of opportunities. Our clients
have too much cash...on these pullbacks we want them to put this
cash to work."
The technology sector outperformed broader indexes. Apple Inc.
and Amazon.com Inc. rose 0.9% and 1.1%, respectively, after
upgrades from Wall Street analysts.
Single-stock investors are now turning their attention to
fourth-quarter earnings season, which unofficially kicked off with
Alcoa 's earnings on Monday. Alcoa's shares slipped 2.3%, despite
reporting better-than-expected profits.
"People feel like fundamentals are solid," said Brian Fenske,
head of sales trading at brokerage ITG in New York. "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.
The slump in oil prices is expected to weigh on earnings, with
analysts forecasting the energy sector's fourth-quarter earnings
will decline 19% from last year.
In corporate news, KB Home dropped 16% after warning the margin
pressures it experienced in its latest quarter are likely to
continue as weak demand leads the home builder to ramp up
incentives.
The warning dragged down shares of other homebuilders as well,
with the iShares U.S. Home Construction exchange-traded fund
falling 2.6%.
Write to Alexandra Scaggs at alexandra.scaggs@wsj.com
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