By Joseph Adinolfi and Victor Reklaitis, MarketWatch
Dow cuts daily drop in half as health-care shares gain
U.S. stocks pared early losses Tuesday after a strong reading on a gauge of services-sector activity suggested first quarter U.S. growth might not be as weak as some had expected.
The Institute for Supply Management services index rose to 54.5 in March, up from 53.4 in February.
"This is definitely a good thing, especially given how influential the services sector is for the U.S. economy," said David Meier, portfolio manager at Motley Fool Asset Management.
The S&P 500 fell 13.39 points, or 0.7%, to 2,052.81.
The Dow Jones Industrial Average more than halved its earlier decline, trading down 48.48 points, or 0.6%, at 17,685.70 in recent trade. It had been down more than 100 points earlier in the session. A strong comeback for health-care shares like Pfizer Inc. (>> Pfizer Inc.) and Merck & Co. (>> Merck & Co., Inc.) helped push the blue-chip average higher. The Nasdaq Composite dropped 27.75 points, or 0.6%, to 4,8763.37.
Despite the pullback, global shares remain mired in the red, as worries about global growth and the potential fallout from negative interest rates in much of the world continued to weigh on shares.
Analysts also blamed weakness world-wide on markets getting ahead of themselves with last month's gains, as well as renewed weakness in oil futures.
While the utilities sector was the weakest performer on the S&P, down 1.2% in recent trade, analysts described the day's trading activity as a broad-based selloff.
"A lot of the issues that have been on people's minds over the last six to 12 months have come home to roost today," Meier said. "This looks like maybe some people are taking some profit--and who could blame them?"
Japan's Nikkei index finished down 2.4% on Tuesday, as rate fears dragged on the banking sector. Most Asian markets closed lower (http://www.marketwatch.com/story/nikkei-tumbles-on-worries-about-negative-interest-rates-2016-04-05), though Chinese stocks gained, and European equities also were retreating Tuesday.
Richard Perry, a Hantec Markets analyst, focused on Japan.
"In this environment, the yen is a key barometer, and with the Japanese classic safe haven moving stronger again, this does not bode especially well for trading confidence," Perry said in a note.
The dollar recently traded down 0.6% (http://www.marketwatch.com/story/dollar-hits-three-week-low-against-yen-as-nikkei-tumbles-2016-04-05) against the yen, at Yen110.59. Gold futures --another safety play--moved up by 1.2%.
Oil futures traded little changed after falling earlier. Analysts have noted the link between crude and stocks has faded (http://www.marketwatch.com/story/heres-why-the-relationship-between-oil-and-stocks-is-fading-2016-04-04) in the past two weeks.
On Monday, the S&P 500 and Dow both closed 0.3% lower (http://www.marketwatch.com/story/stock-futures-point-to-gains-as-wall-street-tries-to-shake-off-oil-slide-2016-04-04), with analysts saying the coming earnings season will be lackluster and could hold back the stock market.
Oliver Pursche, chief executive officer at Bruderman Brothers, said he expects the Federal Reserve's cautious outlook should be enough to limit stock losses--but for shares to continue moving higher corporate earnings will need to surpass lackluster expectations.
"We've had a couple of disappointing quarters in terms of earnings so at some point or another we're going to have to see some good numbers," Pursche said.
Economic news: Official data showed the U.S. trade deficit widened by a slightly greater margin (http://www.marketwatch.com/story/us-trade-deficit-climbs-26-in-february-2016-04-05) than economists had expected in February, with the deficit climbing 2.6% to $47.1 billion due to higher imports. The news initially sent stock futures lower.
In a speech at a German university on Tuesday, International Monetary Fund Managing Director Christine Lagarde called on the world's economies to boost growth, warning that risks to global growth are rising. The comments come after an IMF report on Monday said emerging markets, led by China, are increasingly posing a risk to stock markets (http://www.marketwatch.com/story/imf-warns-of-emerging-market-risk-to-us-stock-markets-2016-04-05) in developed countries.
Meanwhile, markets are more pessimistic than the Federal Reserve in their pricing of U.S. interest rate increases, Chicago Fed President Charles Evans said in Hong Kong (http://www.marketwatch.com/story/feds-evans-still-believes-rate-hikes-will-follow-a-very-shallow-path-2016-04-05) on Tuesday, according to a Reuters report (http://uk.reuters.com/article/us-usa-fed-evans-idUKKCN0X20AD).
Individual movers: Allergan PLC shares (>> Allergan, Inc.) plunged. The move comes after the U.S. Treasury Department late Monday announced new rules to curb corporate tax inversion (http://www.marketwatch.com/story/allergan-shares-plummet-after-new-wrinkle-in-pfizer-merger-2016-04-04) that could complicate the Botox maker's takeover by drug giant Pfizer Inc. (>> Pfizer Inc.)
Walt Disney Co. shares (>> Walt Disney Co) fell after the entertainment giant late Monday said COO Thomas Staggs is departing, throwing Disney's succession plan into disarray (http://www.marketwatch.com/story/disney-shares-fall-after-coo-staggs-announces-departure-2016-04-04).
Tesla Motors Inc. (>> Tesla Motors Inc) shares retreated after the electric car maker said late Monday it had fallen short of its sales goals (http://www.marketwatch.com/story/tesla-reveals-production-issues-with-model-x-promises-model-3-will-be-different-2016-04-04) for its Model X.
Drugstore operator Walgreens Boots Alliance Inc. (>> Walgreens Boots Alliance Inc) dropped after reporting weaker-than-expected quarterly sales (http://www.marketwatch.com/story/walgreens-boots-alliance-second-quarter-sales-fall-short-2016-04-05), while Olive Garden parent Darden Restaurants Inc. (>> Darden Restaurants, Inc.) gained after posting adjusted quarterly profit that beat forecasts (http://www.marketwatch.com/story/darden-beats-profit-and-sales-expectations-with-help-from-olive-garden-2016-04-05).
Stocks mentioned in the article : Pfizer Inc.
, Merck & Co., Inc.
, Tesla Motors Inc
, Allergan, Inc.
, Allergan plc
, Walt Disney Co
, Darden Restaurants, Inc.
, Walgreens Boots Alliance Inc