Dow ends up triple digits; biotechs have worst day of 2015

22.09.2015 00:01

Dow ends up triple digits; biotechs have worst day of 2015

Evelyn Cheng |

U.S. stocks closed mixed Monday as investors weighed a decline in biotechs and eyed comments from Federal Reserve speakers. ( Tweet This )

The Dow Jones industrial average and S&P 500 closed higher, recovering part of their Friday selloff. The Nasdaq composite eked out a 1.7-point gain, weighed by a plunge in biotechs.

The iShares Nasdaq biotechnology ETF (IBB) closed down 4.48 percent for its worst day since Dec. 23, 2014, as biotech stocks plungedon renewed attention on controversy over large price increases on certain drugs.

“The sector is very vulnerable because of the high valuations it trades at, so any bit of regulatory pressure or lower animal spirits in the market have the potential for IBB to have the day they’re experiencing today,” said Bradd Kern, managing director at Armored Wolf, which is short IBB.

The sharp decline in biotechs temporarily pushed the S&P 500 and Nasdaq composite into negative territory.

Health care closed down 1.38 percent as the only decliner in the S&P 500. Merck, Pfizer and Johnson & Johnson were the greatest blue chip decliners.

“Hillary (Clinton) is tweeting that she’s going to take on specialty pharma,” said Paul Yook, portfolio manager at BioShares Funds. “One of the biggest fears in biotech is prices.”

The New York Times reported Monday how a firm raised the price of a 62-year-old drug from $13.50 a tablet to $750 overnight. The news prompted Clinton to tweet she would outline a plan Tuesday to take on price gouging.

Stocks failed to completely recoup intraday gains of more than 1 percent. The Dow closed up about 125 points after earlier rising as much as 194 points.

“I think there’s still some hesitation on the part of investors. I think people want to be positive but we keep running up resistance in the short-term,” said Robert Pavlik, chief market strategist at Boston Private Wealth. He is watching 1,995 to 2,000 on the S&P 500.

“The market is trying to watch these technical levels. Everybody seems to be a technician,” Pavlik said. “The lows of August have still held. We’re in a bit of an uptrend and we’re in a pattern that could be broken either way.”

Major averages 3-month performance

In the close, financials led S&P 500 advancers, while Goldman Sachstopped IBM topped as the greatest boost to the blue chip index.

“There’s really not much else to grab onto,” said Peter Boockvar, chief market strategist at The Lindsey Group. “I think people are still digesting what the Fed did last week, preparing for corporate earnings and waiting for more Fed speakers.”

The Federal Reserve’s decision to delay an interest rate increase last week was largely a “risk management” exercise to be sure recent market volatility would not become a drag on the U.S. economy, Atlanta Fed President Dennis Lockhart said in a Reuters report Monday. He said he still expects the Fed to raise rates this year.

“He’s trying to send the message ‘we’re worried but not overly worried,'” said Peter Cardillo, chief market economist at Rockwell Global Capital. “The last thing the Fed wants is if the market falls apart (and hits) confidence.”

Fed Chair Janet Yellen is scheduled to speakThursday.

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“The direction (of stocks) will be positive. Part of that is some rhetoric over the weekend from three Fed speakers that gave a much more nuanced and balanced tone to the dovish Fed statement that surprised investors,” Art Hogan, chief market strategist at Wunderlich Securities, said ahead of the market open.

U.S. stock index futures held higher after St. Louis Federal Reserve President James Bullard said he would have dissented on the central bank’s decision to hold rates low.

“There’s a powerful case to be made that it’s time to raise interest rates,” he told CNBC’s “Squawk Box” in an interview.

Doug Cote, chief market strategist at Voya Investment Management, said with policymakers pointing overseas “it actually created a little more uncertainty around what the Fed is watching.”

“Does the Fed see something we don’t see in the emerging markets and the developed world?” he said, noting the key for him is U.S. economic fundamentals, which remain in a positive trajectory.

Ahead of other housing data due in the week, August existing home sales fell more than expected to an annual rate of 5.31 million, a 4.8 percent drop.

“What we did see is disappointing. There are two areas that we’ve relied on for slow and steady improvement — autos and housing. Housing (had) a decent setback,” said Jack Ablin, chief investment officer at BMO Private Bank.

He noted the decline was off several strong months of growth in existing home sales.

The U.S. dollar traded one percent higher against major world currencies, with the euro below $1.12 and the yen near 120.5 yen against the greenback.

Treasury yields held above recent lows, with the 10-year yield at 2.20 percent and the 2-year yield at 0.70 percent.

Analysts also noted support for stocks from gains in European markets and higher oil prices.

Crude settled up $2.00, or 4.48 percent, at $46.68 a barrel.

European stocks closed higher, shaking off a near 2-percent decline in the Nikkei and a 0.75 percent loss in the Hang Seng. Mainland Chinese stocks closed nearly 2 percent higher.

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Greece is also a focus following an election on Sunday in which Alexis Tsipras’ left-wing Syriza party returned to power with an unexpected election win, with a mandate to implement a bailout plan.

Stocks are still attempting to recover from correction levels hit in late August. The major averages closed more than 1 percent lower Friday, their worst daily performance since Sept. 1, as investors digested the implications of the Federal Reserve’s decision to keep short-term interest rates low. The central bank also added to concerns about global growth slowdown.

There’s “still probably a lot of indecision on market participants so I’ll leave a little room (for stocks to fluctuate),” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “The uncertainty hasn’t been removed by the Fed last week.”

On Friday, the Dow Jones industrial average and Russell 2000 closed more than 10 percent away from their 52-week highs, back in correction territory. The two indices failed to break out of correction mode Monday.

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The S&P 500 and Nasdaq composite traded less than 8 percent below their 52-week highs.

“For the first time in this recovery the market didn’t respond (positively) to the Fed keeping rates low,” Boockvar said. He noted the change in response could indicate markets have “potentially” entered a bear market.

Symbol
Name
Price
Change
%Change
DJIA Dow Jones Industrial Average 16510.19
125.61 0.77%
S&P 500 S&P 500 Index 1966.97
8.94 0.46%
NASDAQ Nasdaq Composite Index 4828.96
1.73 0.04%

The Dow Jones Industrial Average closed up 125.61 points, or 0.77 percent, at 16,510.19, with Apple leading advancers and Merck leading decliners.

The Dow transports trimmed gains to close about 0.79 percent higher as Alaska Air led about two-thirds of constituents higher.

The S&P 500 closed up 8.94 points, or 0.46 percent, at 1,966.97, with financials leading nine sectors higher and health care the only decliner.

The Nasdaq closed up 1.73 points, or 0.04 percent, at 4,828.95.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded below 22.

About three stocks advanced for every two decliners on the New York Stock Exchange, with an exchange volume of 821 million and a composite volume of 3.2 billion in the close.

Gold settled down $5.00 at $1,133.10 an ounce.

On tap this week:

Monday

Earnings: Red Hat

Tuesday

Earnings: Autozone, CarMax, Carnival, Darden, General Mills

9:00 a.m.: FHFA home prices

7:00 p.m.: Atlanta Fed’s Lockhart

Wednesday

Earnings: Steelcase, Worthington Industries

9:45 a.m.: Manufacturing PMI

12:30 pm Atlanta Fed’s Lockhart

Thursday

Earnings: KB Home, Nike, Accenture, Bed Bath & Beyond, Pier 1 Imports, Jabil Circuit

8:30 a.m.: Initial claims

8:30 a.m.: Durable goods

10:00 a.m.: New home sales

5:00 p.m.: Fed Chair Janet Yellen on inflation/policy at University of Massachusetts

Friday

Earnings: Blackberry

8:30 a.m.: Real GDP Q2 (third)

9:15 a.m.: St. Louis Fed’s Bullard

1:25 p.m.: Kansas City Fed President Esther George

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  • UBS’ Weber sticks to his guns on Fed hike call
  • Market timer: Don’t have ‘October phobia’




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