By Alexandra Scaggs
U.S. stocks slipped in choppy trading Thursday, as a pair of
disappointing bank earnings reports weighed down financial
shares.
The Dow Jones Industrial Average fell 47 points, or 0.3%, to
17379. The S&P 500 lost eight points, or 0.4%, to 2003 and the
Nasdaq Composite Index dropped 34 points, or 0.7% to 4604.
A recent wave of volatile trading continued Thursday, as major
U.S. stock benchmarks swung between gains and losses before noon.
Investors have been watching U.S. corporate earnings reports and
moves in global commodity and bond markets to get a read on
economic growth. They fret that a continuing slide in oil and
metals prices, paired with a rally in government bond prices, is
signaling slowing global growth.
"There are these disconnects" in asset prices, said Michael
O'Rourke, chief market strategist at JonesTrading. "And they
eventually have to right themselves...either stocks have to go down
or bonds have to go down."
The financial sector of the S&P 500 lagged behind the
broader index, recently down 0.8%, after two major U.S. banks
reported results that fell short of Wall Street's forecasts.
Bank of America Corp. fell 3.2% after it said its fourth-quarter
profit fell 11%, hurt by lower trading revenue. Results missed
expectations.
Citigroup Inc. fell 2.4% after it said its fourth-quarter profit
plunged 86% from a year earlier, weighed down by a massive legal
charge and disappointing trading revenue.
"Earnings season is already not off to a good start," said Mr.
O'Rourke. More disappointing reports could be a problem, he said,
since stocks are trading above long-term average valuations. The
S&P 500 is trading at 16.7 times its earnings from the last 12
months, according to FactSet, above its 10-year average of
14.6.
Elsewhere, retailer Best Buy Co. slumped 13% after the company
warned it will boost spending on efforts to fuel growth, which
should start pressuring earnings next quarter.
Crude-oil futures fell, after an early jump helped support a
stock-market advance at the start of trading. Crude-oil futures
were recently down 1.2% at $47.91 a barrel. Oil has lost more than
50% since last June, which has investors worried about global
growth.
Investments seen as defensive bets rose. Utilities and
consumer-staples stocks outperformed broader indexes. And Treasury
prices climbed, pushing the yield on the 10-year note down to
1.794% from 1.833% on Wednesday. The recent decline in the yield on
the 10-year note has surprised some investors, since most expect
the Federal Reserve to raise short-term interest rates this year.
The price of gold, also seen as a safe-haven asset, rose 2.2% to
$1261.50.
Many investors believe stocks can continue to rise in 2015, but
say the path up will be bumpier. That has prompted Danilo Kawasaki,
co-founder of Gerber Kawasaki Wealth & Investment Management,
to sell some technology and biotech stocks in recent months. Both
sectors have outperformed broader markets over the past year and
are seen as riskier.
"We feared that January would be volatile," said Mr. Kawasaki,
whose firm manages about $300 million. He is putting that cash into
Treasurys, bond funds and annuities, he said.
"It's very tricky right now," he said. "The stock market is
hitting all-time highs, and the bond market is at a point where we
could see rates go up and prices get hammered, so we have to be
very tactical."
Thursday's turbulence follows multiple intraday swings this
month, amid a continuing rise in volatility. The CBOE Volatility
Index, which measures expectations for swings in the S&P 500,
has closed above its 10-year average of 20 for two sessions in a
row, as of Wednesday. It rose further Thursday, climbing 3.2% to
22.16.
In other economic news, data showed that U.S. inflation fell by
less than expected. The producer price-index fell 0.3% in December
from a month earlier, the Labor Department said. The index measures
the prices firms get for their goods and services. Excluding food
and energy, prices rose 0.3%. Economists surveyed by The Wall
Street Journal had expected overall prices to fall 0.4% and prices
excluding food and energy to climb 0.1%.
Earlier, markets were rattled after Switzerland's central bank
scrapped its policy of capping the Swiss franc at 1.20 to the euro.
The Swiss National Bank has intervened in markets since September
2011. In the wake of the SNB's move, the euro dropped as low as
0.93 francs.
Still, European stocks rose broadly, with the Stoxx Europe 600
up 2.4%. Germany's DAX Index rose 2%, France's CAC 40 gained 2.1%
and Italy's FTSE MIB rallied 2.4%.
Write to Alexandra Scaggs at alexandra.scaggs@wsj.com
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