By Dan Strumpf
Stocks edged lower at midday Monday, giving back ground
following the biggest weekly gains for major indexes in more than a
year.
The Dow Jones Industrial Average recently fell 19 points, or
0.1%, to 16786. The S&P 500 index gave up six points, or 0.3%,
to 1958. The Nasdaq Composite Index fell 12 points, or 0.3%, to
4472.
Energy companies posted the biggest declines as crude-oil prices
resumed their recent slide. The S&P 500 energy index fell 2.2%.
Shares of Chevron Corp. sank 1%. Exxon Mobil fell 1.3%.
Traders say that market activity was relatively light, with many
investors holding off on placing big trades ahead of an update from
the Federal Reserve due Wednesday. "Every time you have a Fed
meeting in a week, it just draws all the interest and demand on
that day," said Michael Antonelli, sales trader at Robert W.
Baird.
Still, long-term investors remain largely optimistic on the
outlook for U.S. stocks for the remainder of the year. 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."
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.
Monday's decline comes on the heels of a strong week for stocks.
The S&P 500 jumped 4.1% last week, marking its largest weekly
percentage gain since January 2013. The Nasdaq Composite increased
5.3%, the biggest weekly percentage gain since December 2011.
European markets pared earlier losses. The Stoxx 600 Europe
index recently fell 0.7%. Shares were lower 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 3.8% recently.
In commodity markets, crude-oil futures fell sharply, and were
recently down 1% at $80.23 a barrel. Gold futures inched down 0.1%
to $1230.80 an ounce.
Mr. Antonelli said investors are struggling with the
implications of the recent slide in oil prices. While lower oil
prices are generally a benefit to consumers and companies that
consume large amounts of fuel, the retreat has been accompanied by
signs of weaker economic growth globally.
"Everybody is watching crude for some sort of clue," he said.
"At some point, lower crude prices are a boon...At this point, the
deflationary impulse and the slower growth seems to be winning the
argument."
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 that concludes Wednesday, 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 2.250%. 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 2.6%.
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 2%. The company is due to report
earnings after the closing bell.
Write to Dan Strumpf at daniel.strumpf@wsj.com