BackUS stocks decline as Russian sanctions overshadow phone rally
The S&P 500 Index slipped 0.3% to 1,972.89, while the Dow lost 0.3% to 16,937.43
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New York: The US stocks fell as the European Union and the US announced sanctions against Russia, snuffing out earlier gains led by a rally in telephone stocks.
United Parcel Service Inc. slid 3.4% after cutting its full-year forecast. UnitedHealth Group Inc., United Technologies Corp. and Pfizer Inc. led losses in the Dow Jones Industrial Average. Windstream Holdings Inc. surged 11% on plans to spin off assets into a publicly traded real estate investment trust. Masco Corp. and Merck & Co. gained after reporting earnings that topped analysts’ projections.
The Standard & Poor’s 500 Index slipped 0.3% to 1,972.89 at 3:35 pm in New York. The Dow lost 45.16 points, or 0.3%, to 16,937.43 after gaining as much as 74 points earlier. Trading in S&P 500 companies was 28% more than the 30-day average at this time of day.
“Geopolitical risk remains a risk," Dan Veru, chief investment officer at Fort Lee, New Jersey-based Palisade Capital Management, said by phone. The firm oversees $5 billion in assets. “What ultimately makes stocks go higher is earning and earnings are supporting higher valuations in the market."
Stocks turned lower as the EU curbed Russia’s access to bank financing and advanced technology in its widest-ranging sanctions yet over the Kremlin’s backing of the rebellion in eastern Ukraine. EU governments agreed to bar Russian state-owned banks from selling shares or bonds in Europe and restricted the export of equipment to modernize the oil industry, a key prop for Russia’s economy, an EU official said.
The US also sanctioned three Russian banks and a state-owned shipbuilder that supplies the Russian navy and its oil and gas industry, escalating the penalties for the country’s actions in Ukraine.
Earnings Season
American Express Co. and Newmont Mining Corp. are among S&P 500 companies reporting earnings on Tuesday. About 78% of those that have posted results this season have beaten analysts’ estimates for profit, while 65% exceeded sales projections, according to data compiled by Bloomberg.
Profits probably rose 8.2% in the second quarter, while sales gained 3.5%, according to analyst estimates compiled by Bloomberg.
Economic reports on Tuesday showed improving consumer sentiment while the housing market remains in a slowdown. The Conference Board’s consumer confidence index rose to 90.9, the highest since October 2007. Residential real-estate prices advanced 9.3% in the 12 months ended May, the slowest pace in more than a year, as a lull in the US housing market limits appreciation, according to the S&P/Case-Shiller index of property values in 20 cities.
Fed Meeting
The Federal Reserve will reduce its monthly purchases for the sixth time to $25 billion from $35 billion after a two-day policy meeting starting Tuesday, according to economists surveyed by Bloomberg News. Investors will also get a reading on second- quarter economic growth on Wednesday.
Three rounds of monetary stimulus from the central bank have helped propel the five-year bull market, with the S&P 500 almost tripling from 2009.
“Unless something happens dramatically in the Middle East and that’s not our expectation, our sense is that you really need to see a significant change in central bank policy before you start to see markets become a little more nervous and you have a more sustainable selloff," Arvin Soh, a New York-based portfolio manager with GAM, said by phone. His firm manages more than $120 billion globally. “Certainly we’re expecting more volatility as the year progresses."
Volatility Index
The Chicago Board Options Exchange Volatility Index, known as the VIX, rose 4.1% to 13.03. The gauge of options costs has jumped 26% from a seven-year low this month.
Eight out of the S&P 500’s 10 main industries declined, led by industrial and utility companies. Phone companies jumped 2.4%. Verizon Communications Inc. rose 1.4% to $52.30 and AT&T Inc. added 2.8% to $36.65, among the biggest gains in the Dow.
Windstream jumped 11% to $11.68. The company will spin off its fiber and copper networks, as well as other real estate, as a REIT, which will lease use of the assets to Windstream with an initial estimated rent payment of $650 million per year. If state regulators and the Securities and Exchange Commission approve the transaction, it could open the door for the other phone carriers to consider similar deals.
Frontier Communications Corp. climbed 13% to $6.73 and CenturyLink Inc. rallied 7.4% to $40.50.
Cable companies, which have their own network assets, also rose on the news. Comcast Corp. increased 1.2% to $55.38, and Time Warner Cable Inc. added 1.4% to $151.11.
Market Movers
Merck added 1.7% to $58.95. The second-biggest US drugmaker reported that net income more than doubled to $2 billion as the company cut costs. Excluding one-time items, second-quarter earnings were 85 cents a share, beating by 4 cents the average analyst projection.
Masco climbed 7.8% to $21.84. The installer of home insulation reported second-quarter profit of 32 cents a share, above the 28-cent projection by analysts.
UPS lost 3.4% to $99.13. The world’s biggest package shipping company cut its 2014 outlook after reporting earnings of $1.21 a share for the quarter, below forecasts for $1.25 a share.
Herbalife Ltd. tumbled 12% to $59.72. Excluding some items, the nutrition company posted earnings of $1.55 a share, missing analysts’ estimates by 2 cents. The company also said sales this year will grow by 8.5% to 10.5%, slower than the range of 10% to 12% it predicted in April.
Corning Inc. slumped 9.6% to $19.93. Profit missed analysts’ estimates as demand for Gorilla Glass, the hard cover glass used for smartphones and tablets, was weaker than the company expected. Bloomberg
Trista Kelley, Namitha Jagadeesh and Inyoung Hwang in London also contributed to this story.
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