By Dan Strumpf And Saumya Vaishampayan
Stocks pared early losses in midmorning trading, buoyed by
improving third-quarter earnings and optimism over U.S. economic
growth.
The Dow Jones Industrial Average slipped six points to 16799
recently, after falling as many as 75 points shortly after the
open. The S&P 500 index was recently down two points, or 0.1%,
to 1962. The Nasdaq Composite Index shed five points, or 0.1%, to
4479.
While global growth concerns have sent stocks swinging sharply
in recent weeks, investors have recently shifted their attention to
the third-quarter corporate earnings season and signs of U.S.
economic improvement. As of Friday, when 208 companies of the
S&P 500 had reported results, the index was on track for 5.6%
earnings growth from a year earlier, according to FactSet.
That is higher than the 4.5% earnings growth expected before the
reporting season began.
"The U.S. is the place to be right now," said Mike Serio,
regional chief investment officer at Wells Fargo Private Bank,
which manages $179 billion. "We're seeing money continue to come
into the U.S., continue to go into our stock market and continue to
go into our bonds."
Meanwhile, falling energy prices are also giving many companies
a boost, he said, though energy producers continued to suffer
Monday amid a selloff in oil prices. The S&P 500 energy index
fell 2.2%. Shares of Chevron Corp. tumbled 1.3%. Exxon Mobil fell
1.3%.
Mr. Serio said the bank is keeping client portfolios focused on
U.S. companies, particularly those likely to benefit from an
expanding economy, like industrial and information-technology
firms.
European markets also pared earlier losses. The Stoxx 600 Europe
index recently fell 0.7%. Shares were lower on that side of the
Atlantic despite news that the European Central Bank's stress tests
showed that all but 13 of the region's leading banks have enough
capital to survive another period of economic turbulence. The
stress tests are part of an effort to reassure investors that
European lenders are back on track.
The decline comes amid persistent skepticism among investors
about the health of Europe's banks and the ability of the ECB to
cope with a broader economic slowdown, said Michael O'Rourke, chief
market strategist at JonesTrading.
"You could say every bank in Europe is healthy and I'm pretty
sure 99 out of 100 investors would doubt that," he said.
Brazilian markets fell sharply after elections concluded Sunday
showing President Dilma Rousseff winning a second term by a narrow
margin. The Bovespa fell 4.6% recently.
In commodity markets, crude-oil futures fell sharply, and were
recently down 1.5% at $79.75 a barrel. Gold futures inched down
0.1% to $1230.80 an ounce.
In economic news, U.S. pending sales of existing homes increased
0.3% to a seasonally adjusted index level of 105 in September from
August, the National Association of Realtors said Monday. An index
level of 100 is considered an average level of contract activity.
The increase was smaller than expected.
Later in the week, the Federal Reserve is due to hold a two-day
policy meeting starting Tuesday, with investors eagerly
anticipating further guidance on the pace of interest-rate hikes.
On Thursday, investors will get an update on third-quarter U.S.
economic growth, expected to show growth of 3.1%.
"This is a pivotal week overall," Mr. O'Rourke said. "The amount
of news we have coming out should fuel volatility in both
directions."
The yield on the 10-year Treasury note fell to 2.255%. Yields
fall as prices rise.
In earnings news, Merck Co. reported earnings that beat
analysts' expectations, but revenue fell short. The pharmaceutical
giant tightened its earnings outlook for the year by three cents on
each end, and is now expecting $3.46 to $3.50 a share. It also cut
the top end of its revenue forecast and now expects $42.4 billion
to $42.8 billion for the year. Shares fell 1.6%.
Valeant Pharmaceuticals International Inc. said it is prepared
to raise its offer for Allergan Inc. to at least $200 a share.
Allergan also reported third-quarter earnings that beat
expectations and raised its guidance for the year. Shares of
Allergan eased 0.2%.
Shares of Twitter Inc. fell 1%. The company is due to report
earnings after the closing bell.
Write to Dan Strumpf at daniel.strumpf@wsj.com and Saumya
Vaishampayan at saumya.vaishampayan@wsj.com