Weak corporate results, profit booking and investors’ apprehensions over the Federal Reserve’s next move following promising service sector data dragged benchmarks into the red on Tuesday. A report from the Institute of Supply Management revealed that the non-manufacturing sector had grown consecutively for 46 months. Among the S&P 500 industry groups, the Consumer Staples sector gained the most while energy stocks ended on the losing side.
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The Dow Jones Industrial Average (DJI) declined 0.1% to close the day at 15,618.22. The S&P 500 reduced 0.3% to finish Tuesday’s trading session at 1,762.97. The tech-laden Nasdaq Composite Index increased 0.1% to end at 3,939.86. The fear-gauge CBOE Volatility Index (VIX) rose 2.6% to settle at 13.27. Total volume on the NYSE was 3.5 billion shares. Declining stocks outnumbered the advancers. For 66% shares that declined, 31% advanced.
Apart from the profit booking, weak earnings reports played some part in ending the benchmarks’ two-day run. Tenet Healthcare Corp. (NYSE:THC) was a big drag on the S&P 500 as it dropped 9.6%, following lower-than-expected earnings. The company reported third-quarter 2013 income of 45 cents per share from continuing operations which missed the Zacks Consensus Estimate by a cent. However, earnings improved from 33 cents in the year-ago quarter.
Also, The Mosaic Company (MOS - Analyst Report
) shares dropped 1.3% after reporting lower profits in the third quarter of 2013. This was attributable to lower potash and phosphate pricing, cautious buyer behavior and a late fall application season in North America. The company’s profits plunged around 70% year over year to $124 million (or 29 cents per share) from $417 million (or 98 cents per share) posted a year ago.
Separately, AOL, Inc. (NYSE:AOL) reported better-than-expected revenues, but income tumbled owing to charges incurred related to Patch, its network of community news websites. Shares of AOL gained almost 7.8%. Also, CVS Caremark Corporation (NYSE:CVS) came out with its third-quarter 2013 results. Adjusted earnings per share increased 23.9% to $1.05, year over year, beating our estimates by 3 cents. CVS Caremark’s shares gained almost 2% on Tuesday.
Interestingly, positive service sector data from the Institute of Supply Management (ISM) was a reason for worry among investors. Apprehensions arose over the Fed’s quantitative easing plan, following encouraging economic indicators. The ISM reported that the non-manufacturing index improved 1% from September to 55.4% in October. This also outperformed the consensus estimates of 54%. Non-manufacturing business activity index was up 4.6% from September to 59.7% in October. However, the new orders index declined by 2.8% points to 56.8%.
These encouraging numbers follow Friday’s strong manufacturing data from ISM. The Purchasing Managers Index (PMI) for October was reported to have increased to 56.4% from September’s figure of 56.2%, which also outpaced the consensus estimate of 54.9%.
On Monday, members of the central bank had said the Federal Reserve should reduce its asset purchases only when it receives clear indications that the economy is improving. Even then, tapering will happen only gradually. The opinions provided by the members drew attention towards Fed Chairman Ben Bernanke’s repeated promises to reduce bond purchases only when there are sufficient indications of an improvement in the economic situation.
However, the three Fed officials did not comment on exactly when they believe the stimulus program should be withdrawn. The Fed’s third round of quantitative easing has now entered its fourteenth month.
The Consumer Staples sector was the biggest gainer among the S&P 500 industry groups on Tuesday. The Consumer Staples SPDR (XLP) gained 0.2%. Stocks such as the Procter & Gamble Company (NYSE:PG), Wal-Mart Stores, Inc. (NYSE:WMT), CVS Caremark Corporation (NYSE:CVS), PepsiCo, Inc. (NYSE:PEP), and Altria Group Inc. (NYSE:MO) increased 0.1%, 0.1%, 2.0%, 0.3%, and 0.3%, respectively.
The Energy sector was the biggest loser among the S&P 500 industry groups on Tuesday. The Energy SPDR (XLE) lost 0.9%. Stocks such as Exxon Mobil Corporation (NYSE:XOM), Schlumberger Limited. (NYSE:SLB), Occidental Petroleum Corporation (NYSE:OXY), Pioneer Natural Resources (NYSE:PXD), and ConocoPhillips (NYSE:COP) decreased 0.1%, 1.2%, 1.1%, 1.4%, and 1.0%, respectively.