– Wall Street’s main indexes fell for the first time in three sessions on Tuesday as caution crept in ahead of crucial data on inflation, a root cause of the recent sell-off.
A strong reading on U.S. consumer price and retail sales data on Wednesday could fan fears over rising inflation and faster interest rate hikes – the same worries that sparked the sell-off after strong jobs data on Feb. 2.
“Investors are probably positioning with a bit of a risk-off mindset going into those two (economic data reports) tomorrow,” said Matt Miskin, market strategist at John Hancock Investments.
“The core CPI estimate is a modest decrease from last month. But in the event that inflation does accelerate, that could lead volatility to continue as the Goldilocks environment maybe under further pressure.”
Cleveland Fed president Loretta Mester, a voting member in the central bank’s rate-setting committee this year, said the recent stock market sell-off and jump in volatility will not damage the economy’s overall strong prospects.
After a wildly volatile week that pushed the market into correction territory, U.S. stocks gained roughly 3 percent over Friday and Monday, their best two-day gains since June 2016.
By 11:09 a.m. ET, the Dow Jones Industrial Average .DJI was down 96.29 points, or 0.39 percent, at 24,504.98, the S&P 500 .SPX was down 8.64 points, or 0.33 percent, at 2,647.36 and the Nasdaq Composite .IXIC was down 6.63 points, or 0.09 percent, at 6,975.34.
Nine of the 11 major S&P indexes were lower, led by losses in the healthcare .SPXHC and financial .SPSY indexes.
Traders work on the floor of the New York Stock Exchange, (NYSE) in New York, U.S., February 9, 2018. REUTERS/Brendan McDermidBenchmark U.S. 10-year Treasury yields US10YT=RR were hovering at 2.8439 percent, shy of their four-year peak of 2.9020 percent on Monday. [US/]
The CBOE Volatility Index .VIX, a widely-followed measure of short-term stock volatility, eased to near session-lows at 25.51, and well short of the 50-point mark it touched last week.
The recent pullback has wiped out all of the year’s gains for the benchmark S&P 500 and the blue-chip Dow, which are now down about 0.7 percent so far in 2018.
The tech-heavy Nasdaq was still clinging to a 1.22 percent gain for the year.
Of the 70 percent of the S&P 500 companies that have reported earnings, nearly 78 percent of them topping profit expectations, according to Thomson Reuters data. That is above the 72 percent average beat-rate in the past four quarters.
Shares of Under Armour (UAA.N) rose more than 18 percent after the sportswear maker reported quarterly revenue that beat analysts’ estimates.
AmerisourceBergen (ABC.N) jumped about 8 percent after the Wall Street Journal reported Walgreens (WBA.O) made a takeover approach for the drug distributor. Walgreens rose marginally.
Henry Schein (HSIC.O) and Patterson Companies (PDCO.O) fell 10 percent and 9 percent, respectively, after a U.S. Federal Trade Commission complaint against the dental supply companies.
Their losses were the biggest among healthcare distributors weighing up the possible ramifications of the AmerisourceBergen deal and a report of Amazon’s (AMZN.O) push into the space.
Declining issues outnumbered advancers on the NYSE by 1,527 to 1,240. On the Nasdaq, 1,352 issues fell and 1,346 advanced.
Reporting by Sruthi Shankar in Bengaluru;
Sec Commissioner Questions Complex Financial Products Amid Vix Drama
WASHINGTON – A Democratic commissioner at the U.S. Securities and Exchange Commission on Friday questioned the growing use of complex financial products by retail investors such as derivatives based on stock market volatility indicators that were linked to recent weeks of market turmoil.
Commissioner Kara Stein questioned whether retail investors are taking risks with complicated financial products that they cannot even appreciate. In remarks prepared for the “SEC Speaks” conference in Washington, she cited the wild price swings in recent weeks of the VIX and products that attempt to track that gauge of future stock market volatility.
“The question should be…not can we create complex and esoteric products, but should we?” she said.
Dramatic swings in the stock market in recent weeks saw some volatility products derived from VIX drastically lose their value, driving firms to cancel some of those products or restrict investor access.
Stein warned that it is easier than ever for average investors to gain access to incredibly complicated products, and even heightened disclosure does not guaranteed investors appreciate those risks.
“What concerns me is the disconnect between what investors actually understand and what they really need to understand in order to have a fighting chance at using these products the way they are designed to be used,” she said.
Stein said the SEC has seen “abuses relating to the purchase and sale of complex products,” and is bringing enforcement actions along those lines. But she called on private parties, including exchanges and industry professionals, to do more to ensure the average investor is not investing in financial products they do not understand.
Reporting by Pete Schroeder and Michelle Price;
Fed Sees Rate Hikes On Track Continued Us Growth
WASHINGTON, – The U.S. Federal Reserve, looking past a recent stock market sell-off and concern about inflation, said it sees steady growth continuing and no serious risks on the horizon the might pause its planned pace of rate hikes.
“The economic expansion continues to be supported by steady job gains, rising household wealth, favorable consumer sentiment, strong economic growth abroad, and accommodative financial conditions,” the Fed’s Washington-based Board of Governors wrote in its semiannual report to Congress on monetary policy. “Upbeat business sentiment appears to have supported solid growth over the past year.”
Related CoverageDeficits may hurt U.S. response to recessions: Fed officialFed officials anticipate raising rates three times this year.
The report was released Friday ahead of new Chairman Jerome Powell’s first public outing next week, when he testifies separately before House and Senate committees.
It also comes after a major rewrite of the U.S. tax code, and a stock market sell-off that at one point had shaved 10 percent from the value of major indexes and marked an abrupt return of market volatility.
The Fed noted that even after the sell-off, and taking account of the higher corporate profits likely to flow from the recent tax cuts and support higher stock prices, “valuation pressures continue to be elevated across a range of asset classes, including equities and commercial real estate.”
The use of leverage “has been increasing in some areas,” the Fed said, noting in particular “the provision of margin credit to equity investors such as hedge funds” and other parts of the “nonbank financial sector.” Household debt has also risen as has business sector leverage “particularly among speculative-grade firms.”
Still, the Fed said, “overall vulnerabilities in the U.S. financial system remain moderate on balance,” with banks better buffeted against any trouble due to their “strong capital position.” Even at their current high level, the Fed noted, stock price-to-earnings ratios were still below those during the exuberant late 1990s.
In general, that document portrayed an economy whose households had achieved record levels of wealth – by September 2017 household net worth was 6.7 times disposable income, the highest reading in that series – with no obvious instabilities to risk continued steady progress.
Fiscal policy would provide a modest bump in gross domestic product in 2018, the document said, but there was no concern about an imminent breakout of inflation.
That’s despite the fact that the Fed judged labor markets as largely recovered from the 2007-2009 recession. The labor market across almost all dimensions “can be cautiously interpreted as consistent with…full employment.”
Reporting by Howard Schneider and Jason Lange;
Us Senators Press Justice Department On Daimler Emissions Probe Letter
WASHINGTON – Two Democratic U.S. senators on Friday urged Attorney General Jeff Sessions to thoroughly investigate Daimler AG (DAIGn.DE) after a media report alleged the automaker used potentially illegal software to pass diesel emissions tests, according to a letter seen by Reuters.
German newspaper Bild am Sonntag had reported on Sunday that U.S. investigators probing the Mercedes-Benz parent found that its cars were equipped with software which may have helped them to pass diesel emissions tests, citing confidential documents.
The report cited emails from Daimler engineers questioning whether these software functions were legal.
Senators Edward Markey and Richard Blumenthal said recent reports “raise serious questions as to whether Daimler AG deceived federal regulators and U.S. consumers and endangered public health.”
They added prosecutors should take “appropriate action against the company, including criminal charges against company executives if warranted.”
A Daimler spokesman declined to comment Friday but the company said earlier this week it was cooperating fully with U.S. authorities.
Diesel vehicles have been under heightened scrutiny since Daimler rival Volkswagen (VOWG_p.DE) was forced to pay billions of dollars in fines after admitting in 2015 to using software to evade exhaust tests by manipulating emissions to disguise excess pollution.
The U.S. Environmental Protection Agency in February 2016 requested information from Mercedes-Benz to explain diesel emissions levels. Daimler said in April 2016 the Justice Department had asked it to investigate its emissions certification process.
A Justice Department spokesman did not immediately comment.
Daimler has said in financial filings it faced ongoing investigations by U.S. and German authorities into excess diesel emissions that could lead to significant penalties and recalls.
Software-based engine management systems are illegal if they are not declared to U.S. regulators and if designed to evade anti-pollution tests.
In Europe, carmakers have legally made use of a “thermal window,” a temperature threshold allowing carmakers to throttle back emissions management systems to protect the engine from damage.
The Justice Department sued Fiat Chrysler Automobiles NV (FCHA.MI) in May accusing it of illegally using software that led to excess emissions in 104,000 U.S. diesel vehicles sold since 2014. The government is seeking “substantial” civil penalties to settle the suit.
German prosecutors searched Daimler premises in May 2017 as part of an ongoing fraud probe related to false advertising and possible manipulation of exhaust-gas after-treatment in diesel cars.
Stuttgart prosecutors said on Monday two Daimler employees were being investigated as part of the probe.
In May, Daimler said it had dropped plans to seek U.S. approval to sell 2017 Mercedes-Benz U.S. diesel vehicles. The company faces ongoing U.S. lawsuits from investors.
Reporting by David Shepardson;
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