By Anora Mahmudova and Carla Mozee, MarketWatch Industrial
production falls unexpectedly in October
NEW YORK (MarketWatch) -- The U.S. stock market was drifting
lower on Monday as news that Japan fell into recession, as well
softer-than-expected manufacturing data weighed on sentiment.
Both the Empire State manufacturing index and industrial
production came in weaker than industry experts had forecast.
The S&P 500 (SPX) and the Dow Jones Industrial Average (DJI)
retreated from record levels reached last week. The Nasdaq
Composite (RIXF) edged lower.
Ralph Segall, chief investment officer at Segall Bryant &
Hamill, asset manager with $10.5 billion under management, said
that the biggest story of the earnings season is how drab the
guidance has been from companies.
"On a trailing basis, stocks are fairly valued, but future
earnings expectations are too high, if you take into account
downgrades in outlooks by companies," Segall said.
"In the short-term, we expect a good holiday-shopping season, as
lower gas prices left consumer with some extra cash. In the
long-term, falling oil prices will have an effect on jobs that were
growing in shale producing states and junk debt of energy
companies, while rising dollar will hurt profits of U.S. exporters
and multinationals," he added.
Economic data: The Empire State manufacturing index, the first
of the many regional manufacturing gauges to be released, rebounded
slightly in November, but is still well below September levels,
indicating a downshift in activity.
Separately, industrial production fell unexpectedly in October,
the second drop in the last three months, the Federal Reserve said
Monday. In a sign that falling oil prices are beginning to effect
the energy industry, oil and gas well drilling fell for the first
time since February.
Meanwhile, Japan's real gross domestic product shrank 1.6% in
the third quarter, contributing to the decline was companies
cutting inventories and subdued capital investment. Economists
surveyed by The Wall Street Journal had, on average, been looking
for the economy to expand by 2.25%.
Stocks to watch:Baker Hughes Inc.(BHI) shares surged after
Halliburton Co.(HAL)agreed to purchase its rival oil-services
provider in a cash-and-stock deal valued at $34.6 billion. The deal
is expected to close in the second half of 2015. Halliburton shares
fell nearly 5%.
Pfizer Inc. (PFE) shares fell after the drug maker and Germany's
Merck KGaA said they'll work together to develop a new anti-cancer
tumor treatment. Pfizer cut its 2014 per-share earnings view as
Merck will receive $850 million upfront in the venture.
Tyson Foods Inc. (TSN) shares climbed as the meat producer said
quarterly sales rose 14%.
Botox maker Allergan Inc. (AGN) neared a deal to be acquired by
Actavis PLC(ACT), according to The Wall Street Journal. Both
Allergan and Actavis shares jumped.
Hasbro Inc.(HAS) shares surged as merger talks between the
Transformers toy maker and DreamWorks Animation SKG Inc. (DWA) fell
through, according to reports.
(Read more about the day's notable stocks in Movers &
Shakers column:
http://www.marketwatch.com/story/tyson-urban-outfitters-agilent-earnings-in-focus-2014-11-16.)
Other markets: Japanese stocks sank after the GDP report,
leaving the Nikkei Stock Average down 3%. The Japanese yen,
meanwhile, slid to a seven-year low against the U.S. dollar
(USDJPY), but recovered somewhat allowing the dollar to buy more
than Yen116. The country's Prime Minister Shinzo Abe said he will
decide on whether to move forward with a planned sales-tax increase
following analysis of the situation, according to media reports
Monday. Abe may also call for a snap election to be held next
month.
"The stock market and currency could remain volatile until Mr.
Abe confirms his intentions. There is, of course, the prospect of
further economic stimulus as well," said Richard Troue, head of
investment analysis, at Hargreaves Lansdown, in a Monday note.
December crude-oil futures (CLZ4) fell 1%, resuming a run of
losses. European stocks were off session lows and nearly flat. Gold
futures (GCX4) were flat at around $1,185 an ounce.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires