U.S. stocks fluctuated, after the benchmark index’s biggest two-day decline since June, as a report that Janet Yellen was picked to lead the Federal Reserve offset concern that the debt impasse will harm the economy.
Alcoa Inc. rallied 3.8% after the biggest U.S. aluminum producer unofficially kicked off earnings season with better-than-forecast profit. Men’s Wearhouse Inc. jumped 25% after Jos. A. Bank Clothiers Inc. offered to acquire the apparel retailer. Yum! Brands Inc. sank 8.5% after third-quarter income fell 68% on lower same-store sales in China. Costco Wholesale Corp. dropped 1.6% after profit missed estimates.
The S&P 500 (CME:SPZ13) added less than 1 point to 1,655.56 at 10:09 a.m. in New York after climbing 0.2% earlier. The Dow Jones Industrial Average rose 3.11 points, or less than 0.1% to 14,779.64. Trading in S&P 500 stocks was 6.5% above the 30-day average during this time of day.
“The longer the Washington shutdown goes, the more we drift lower,” John Augustine, who helps manage $27 billion as chief market strategist at Cincinnati-based Fifth Third Bancorp, said in a phone interview. “The earnings estimate revisions for next year and the market’s assessment of impact to GDP next year will determine how fast we recover. The market expects to see a continuation of Fed policy from Yellen. That’s one stabilizing force for the market at least for today.”
The S&P 500 retreated 2.1% over the past two days as concern grew that lawmakers may fail to raise the federal debt ceiling in time to avoid a government default. Economists say failure by the world’s largest borrower to pay its debt will devastate stock markets from Brazil to Zurich and throw the U.S. and world economies into a recession that probably would become a depression.
Some possible paths out of the partisan impasse in Washington are starting to emerge as the U.S. government enters the ninth day of a partial shutdown, with just over a week before U.S. borrowing authority lapses Oct. 17. Each option is tentative and lawmakers remain far from an agreement amid verbal sparring between President Barack Obama and House Speaker John Boehner.
Senate Democrats started setting up a test vote for later this week on a plan that would push the next debt-limit fight into 2015. Obama said he could accept a short-term increase without policy conditions that set the terms for future talks.
Obama will nominate Yellen, the current Fed vice chairman and an architect of its stimulus program, to succeed Ben S. Bernanke as chairman at 3 p.m. in Washington, according to a White House official. As a top deputy to Bernanke, whose term expires Jan. 31, Yellen supported the central bank’s bond-buying programs that have helped propel the S&P 500 up as much as 155% from a 12-year low in March 2009.
The Fed will today release minutes from its Sept. 17-18 meeting, at which officials unexpectedly maintained the pace of its monthly purchases. That decision pushed the S&P 500 to a record close of 1,725.52. The gauge retreated 4.1% through yesterday since then.
The government shutdown has delayed the release of economic data, including the Labor Department’s monthly payrolls report, which was due Oct. 4. The lack of data is making it harder for Fed policy makers to assess the health of the economy as they consider when to start paring unprecedented monetary stimulus. Central bankers next convene Oct. 29-30.
“We’re just waiting for these issues to be sorted and go into a new reporting season,” Guy de Blonay, a London-based fund manager at Jupiter Asset Management Ltd., which oversees about $46 billion, said by telephone, referring to the impasse in Washington. “The longer it takes to sort out, the more problematic it becomes and the more the stock market will have to price in the future implications for growth prospects. But I would be surprised if we don’t see some sort of agreement relatively soon.”
Investors will focus on companies’ financial results for clues on the economy’s performance, as Alcoa yesterday became the first S&P 500 company to report results whose fiscal year follows the calendar. JPMorgan Chase & Co. and Wells Fargo & Co. will also report this week.
Profits for companies in the S&P 500 probably increased 1.7% during the third quarter while sales rose 2.2%, according to analysts’ estimates compiled by Bloomberg. Analysts forecast earnings growth will accelerate to 8.9% in the final three months of the year.
Alcoa climbed 3.8% to $8.25. The aluminum producer reported better-than-forecast quarterly earnings after its smelting business returned to profitability and results improved at a unit that makes auto and aerospace parts.
Men’s Wearhouse jumped 25% to $43.92 after Jos. A. Bank said it’s seeking to buy the apparel retailer for $2.3 billion in cash, or $48 a share. Men’s Wearhouse rejected the takeover offer, saying the bid “significantly” undervalued the company and wasn’t in the best interest of shareholders. Jos. A. Bank rose 7.,8% to $44.90.
J.C. Penney Co. rose 1.7% to $7.91. The company named Saks Inc. Chief Executive Officer Stephen Sadove to its board, bringing in a luxury retail executive to help the department-store chain as it attempts a turnaround.
Yum retreated 8.5% to $65.20 as the owner of the KFC fast-food chain also cut its 2013 earnings forecast. Third- quarter net income decreased to $152 million, or 33 cents a share, from $471 million, or $1, a year earlier, the Louisville, Kentucky-based company said. Excluding certain items, profit was 85 cents a share. Analysts had projected 92 cents, the average of 23 estimates compiled by Bloomberg.
Costco fell 1.6% to $110.46. The largest U.S. warehouse-club chain reported fourth-quarter profit that missed analysts’ estimates, as revenue climbed at a slower pace. Net income in the quarter ended Sept. 1 rose to $617 million, or $1.40 a share, from $609 million, or $1.39, a year earlier, the company said. Analysts projected profit of $1.46, the average of 13 estimates compiled by Bloomberg.
Family Dollar Stores Inc. dropped 2% to $68.05. The discount retailer issued a forecast for fiscal 2014 profit that fell short of estimates and reported fourth-quarter revenues and same-store sales that missed forecasts.