US Stocks Close Mixed as Biotech Slumps, Energy Jumps
New York (Oct 6) It was a very different day for investors in energy stocks and those in biotech.
And that showed in the major stock indexes. The Dow Jones Industrial Average climbed 0.08% as Chevron (CVX - Get Report) and Exxon Mobil (XOM - Get Report) participated in a broader energy rally, while the Nasdaq was dragged 0.69% lower by another selloff in health care.
Meanwhile, the S&P 500 fell 0.36% after being caught in the middle of the dueling forces for much of the session.
Biotech stocks have suffered from massive declines over the past two weeks after Democratic presidential candidate Hillary Clinton vowed to address industry "price gouging." The iShares NASDAQ Biotechnology Index ETF (IBB) has dropped nearly 16% since Sept. 21, the day Clinton made the announcement. Bristol-Myers Squibb (BMY - Get Report) , Eli Lilly (LLY - Get Report) , Biogen (BIIB) , and Teva Pharmaceutical (TEVA) were among the worst performers on Tuesday.
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Crude oil rallied again on Tuesday, closing at its highest level since Aug. 31. Oil has been on a tear since Friday when a weekly count of rig activity fell more than expected. West Texas Intermediate crude climbed 4.9% on Tuesday to $48.53 a barrel.
The energy sector surged in response. Major players such as Chevron (CVX - Get Report) , Exxon Mobil (XOM - Get Report) , ConocoPhillips (COP) , Halliburton (HAL) and PetroChina (PTR) were higher, while the Energy Select Sector SPDR ETF (XLE) added 2.2%.
Third-quarter earnings season won't kick off in earnest until Thursday afternoon with the unofficial kickoff from Alcoa (AA) . However, there were a number of earnings reports out before then for investors to chew on.
The Container Store (TCS) shares were more than 18% lower after the storage solutions retailer missed quarterly estimates on its top- and bottom-lines. The company earned 6 cents a share in its second quarter, a penny below estimates, while revenue of $195.5 million fell short of forecasts by $2 million. Sales climbed 1.2% from a year earlier.
PepsiCo (PEP) climbed 1.3% after a better-than-expected third quarter. The company reported organic revenue up 7.4% over the quarter, driven by growth in its Frito-Lay and beverage businesses in North America. However, overall sales fell 5% as foreign exchange reduced its top-line by 12%.
Third-quarter earnings are expected to decline 4.2% from the third quarter a year earlier, according to Thomson Reuters. Similar issues that plagued the second quarter such as a stronger U.S. dollar and lower energy prices are expected to carry over into this quarter. International companies that derive a bulk of their sales overseas, for example, will likely take a hit on the currency exchange.
"We'll be looking for not only the actual results but to management guidance to see if we can get a glimmer of insight into the pace of economic growth, not only in the U.S. but abroad," said Terry Sandven, chief equity strategist for U.S. Bank Wealth Management. "Earnings will be the swing factor and largely set the tone for how equities perform into year end."
The U.S. trade deficit climbed nearly 16% to $48.3 billion in August, according to the Commerce Department. The surge was largely attributed to a stronger U.S. dollar that lowered the volume of exports to a three-year low. Exports fell 2% to $185.1 billion.
U.S. stocks on Monday rose and the S&P 500 clinched its longest winning streak this year as crude oil prices surged and boosted the energy sector. The benchmark index has gained more than 5% over the past five days after jumping nearly 2% on Monday.
In company news, Illumina (ILMN) dropped 10% after reporting disappointing preliminary sales for its third quarter. The DNA sequencing company expects quarterly revenue of $550 million, up 14% from a year earlier but short estimates of $569 million. Illumina said weak instrument sales performance in Europe and the Asia-Pacific was to blame.
DuPont (DD) jumped 7.7% after announcing the retirement of CEO Ellen Kullman who has held the position since 2009. Board member Edward Breen will act as interim CEO until a permanent replacement is found. The company also lowered its full-year earnings outlook to $2.75 a share from $3.10 due to a stronger U.S. dollar and increased competition.
In deals news, Skyworks Solutions (SWKS) agreed to buy chipmaker PMC-Sierra (PMCS) for $2 billion in an all-cash deal. The acquisition is just the latest consolidation in the semiconductor sector. There have been 155 semiconductor takeovers announced since January totalling around $106 billion, six times higher than a year earlier, according to Bloomberg. PMC-Sierra shares surged 33.2% on the news.
EnerSys (ENS) shares jumped more than 8% on reports Johnson Controls (JCI) is interested in a takeover. Johnson Controls, which specializes in automatic temperature regulation technology, could be looking at a deal worth more than $3 billion, according to The Wall Street Journal.