US stocks drift as European gloom returns

US stocks meandered sideways yesterday as fears about Europe overshadowed recent excitement about central banks’ efforts to boost the market. Stocks opened lower, recovered by mid-afternoon to nearly flat and closed down modestly. Minutes before the close, Caterpillar cut its earnings forecast for 2015, citing weakness in the world economy. Its stock fell 0.9 per cent to US$90.87 and was the top drag on the Dow. After the bell, Caterpillar’s stock lost another 2.1 per cent to US$88.99. An index of business confidence in Germany, the biggest economy in Europe, fell for a fifth straight month. Many economists had expected it to at least remain flat. Some think Germany is headed for a recession. The threat of the years-old European debt crisis has seemed less immediate in recent weeks as central banks unveiled measures aimed at encouraging investment and boosting the global economy. The German report reignited those fears. Stocks had risen strongly in recent weeks as traders anticipated, then received, help from the Federal Reserve in the form of an open-ended bond-buying program. The Fed will buy US$40 billion of mortgage bonds per month until the economy has improved. “It’s not unusual after big moves for the market to, in essence, go quiet and wait for the next catalyst,” said Quincy Krosby, market strategist with Prudential Financial. The next catalyst, Krosby said, is third-quarter earnings, which companies will begin to announce next month.

 

 

The Dow Jones industrial average closed down 20.55 points, or 0.2 per cent, at 13,558.92. The Standard & Poor’s 500 index declined 3.26, or 0.2 per cent, to 1,459.89. Its two strongest groups were utilities and telecommunications, safer stocks that tend to do well in a weaker economy. The Nasdaq composite index dropped 19.18 points, or 0.6 per cent, to 3,160.78. The Nasdaq is heavy in technology shares, which were dragged lower by Apple. As in the US, the concern in Germany is that an economy on the rebound will be weighed down by the rest of the European countries, half of which are already in recession. Germany’s economy grew 0.3 per cent in the second quarter from the previous quarter, but a number of economists now believe the country will fall into a recession in the second half of the year. In the US, stocks have gone from underpriced to fairly priced, said Doug Cote, chief market strategist at ING Investment Management. If recent weakness in US manufacturing is any guide, he said, traders will be disappointed next month by companies’ quarterly results.

“It will be a sea change — the first time in three years that we’ve had negative earnings growth,” Cote said. He said China’s abrupt economic slowdown is adding to corporate America’s woes. If that happens, Krosby said, it could drive the market lower. Without enough positive surprises from companies this quarter, the Fed programme probably won’t be enough to extend the rally, she said. “There’s an uneasy feeling surrounding the market,” she said.

 

 

In the US, traders are looking for more good news from the housing market, which appears to be bouncing back after being a stuck in a rut for years. The latest data on new and pending home sales will be released later in the week. Lennar on yesterday became the latest builder to post surprisingly strong earnings. A rise in orders and the number of homes delivered, adding to a big tax benefit, had the Miami homebuilder quadrupling profits. KB Home on Friday did almost as well, and housing shares jumped on optimistic comments from its CEO, Stuart Miller. On Monday, Lennar closed down 55 cents, or 1.5 per cent, at US$36.96. KB Home fell 63 cents, or 4.1 per cent, to US$14.63. Apple fell after sales of the new iPhone 5 missed analysts’ targets. The company sold 5 million units in three days. Its stock fell US$9.31, or 1.3 percent, to US$690.79. UnitedHealth Group was down slightly on its first day in the Dow, which shuffled its lineup of stocks to reflect health care’s growing importance in the economy. UnitedHealth, the nation’s largest health insurer, replaces Kraft Foods in the Dow. Its stock fell 20 cents, or 0.4 percent, to US$55.98. Peregrine Pharmaceuticals Inc. stock collapsed after the cancer drug developer told analysts they should not rely on recently disclosed data about its lead product, a proposed lung cancer treatment. The stock fell US$4.23, or 78.5 per cent, to US$1.16.