By William L. Watts and Victor Reklaitis, MarketWatch
NEW YORK (MarketWatch) -- Stocks posted a mixed performance
Monday, with the Dow industrials slipping into negative territory
as investors hesitated to chase equities to new highs ahead of
potentially market-swaying economic data and uncertainty over
exactly when the Federal Reserve could begin to throttle back the
flow of monetary stimulus to the economy.
Stocks had initially gained ground after a report on factory
orders that roughly matched expectations, with bulls also finding
temporary solace in remarks by St. Louis Federal Reserve Bank
President James Bullard.
The S&P 500 (SPX) was last up 2 points, or 0.1%, to 1,764,
while the Dow Jones Industrial Average (DJI) dropped 10 points, or
0.1%, to 15,606.
The Nasdaq Composite(RIXF) held on to a gain of 5 points, or
0.1%, to 3,927.
"The market's Kryptonite is early taper talk at the moment, and
this first full week of November has the potential for it to be
hurled at it from all directions with no shortage of U.S. economic
data on the agenda, including the all-important October payrolls
report and the advance estimate of [third-quarter] GDP," said Jim
Reid, strategist at Deutsche Bank, in a note. Reid said there had
been some signs of risk being taken off the table already, noting
pullbacks in emerging-markets equities, fixed income and
currencies.
Also, a "stretched" valuation for the S&P 500 indicates
further gains will be sluggish, said analysts at futures broker
R.J. O'Brien in Chicago.
"We still look for a generally rising stock market into 2014 but
there is likely to a lot of sideways action with only a modest
upward bias. The medium-term earnings outlook looks positive, but
the S&P 500 is already trading at the relatively rich level of
15.9 times forward earnings. That is well above the five-year
average of 14.0 and the 10-year average of 14.8," they said, in a
note.
"Due to stretched valuations, we believe the stock market will
only be able to climb as fast as earnings grow," the R.J. O'Brien
analysts said, adding that the "good news" is that the market is
looking for strong earnings growth of 11.3% in 2014 after growth of
only 5.8% this year.
Bullard told CNBC that the Federal Reserve did not have to be in
a "hurry" to pare its $85 billion-a-month in bond purchases,
because inflation is low. On the other hand, Bullard also made
several comments that suggest a taper could come soon.
U.S. factory orders for September rose 1.7%. That met the
consensus forecast from a MarketWatch poll of economists. Other
surveys called for a 1.8% gain.
In other Fed news, Dallas Fed President Richard Fisher suggested
in Sydney on Monday that tapering of bond buys could come sooner
than expected, and that fiscal risks shouldn't stop the Fed from
doing what is right for the economy. At 11:40 a.m. Eastern, Fed
Governor Jerome Powell will speak on Fed policy and emerging
markets at a conference in San Francisco.
At 2 p.m. Eastern, Boston Fed President Eric Rosengren, a voting
member of the Fed's policy-making committee, will talk about the
economy at the University of Massachusetts in Boston.
A strong October for stocks, with the S&P 500 gaining 4.5%
and hitting record highs, has left some strategists cautious. "The
outsized gains the stock market enjoyed in October [...] suggest a
pause is likely before the year-end rally continues," said Bruce
Bittles, chief investment strategist at Robert W. Baird & Co.,
in a note on Monday. Bittles and other strategists say the
principal driver for stocks continues to be Fed policy. (Read more:
The next pain trade involves March taper assumptions
http://blogs.marketwatch.com/thetell/2013/11/04/the-next-pain-trade-involves-march-taper-assumptions-b-of-a/.).
Others note that, historically, strong year-to-date gains
through October have tended to point to further gains for equities
in November and December
Among blue chips, shares of Du Pont (DD) were the biggest loser,
off 2%. DuPont had gained ground last week after it said it would
spin off its performance chemicals unit to existing
shareholders.
Fellow Dow component Johnson & Johnson (JNJ) fell 0.9% after
the company said it would pay around $2 billion to settle a Justice
Department probe into the marketing of antipsychotic drug Riperdal.
The company will plead guilty to a misdemeanor, officials said.
Elsewhere, shares of BlackBerry Ltd. (RIMM) fell nearly 17% on
news the ailing smartphone maker has abandoned a plan to sell
itself. BlackBerry said it would replace Chief Executive Thorsten
Heins and receive a $1 billion investment from institutional
investors. See: BlackBerry tries to keep the lights on.
Kellogg Co. (K) rose 1.6% after the cereal maker reported
earnings and said it would cut its workforce by 7% by the end of
2017.
Steelmakers were also on the rise after analysts at Goldman
Sachs upgraded their view on the sector to neutral from cautious
and upgraded the shares of individual steelmakers. Goldman lifted
AK Steel Holding Corp. (AKS) and United States Steel Corp. (X) to
buy from sell and raised Steel Dynamics Inc. (STLD) to buy from
neutral. AK Steel shares rose 9.8%, while United States Steel
advanced 4.5% and Steel Dynamics gained 2.8%.
Also, Goldman downgraded Reliance Steel & Aluminum Co. (RS)
to neutral from buy. Shares rose 0.2%.
In Asia, stocks finished mostly lower, surrendering gains made
after upbeat services data from China. European stocks traded
higher, while gold edged up and oil prices inched higher.
The dollar was down slightly.
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