US stocks slip from all-time highs before policy meetings

Bloomberg

U.S. stocks retreated from records, with central-bank policy decisions looming later in the week as investors assess corporate earnings.
The S&P 500 Index fell 0.3 percent to 2,169.61 at 9:37 a.m. in New York, following a fourth week of gains for the gauge. The Dow Jones Industrial Average dropped 59.53 points to 18,521.32.
Earnings remain in focus, with companies including Texas Instruments Inc., Sprint Corp. and Gilead Sciences Inc. scheduled to report earnings Monday. Profits and sales have broadly topped projections so far this season, and analysts have eased their estimates for declines in net income.
Among stocks moving in early trading, Yahoo! Inc. shares were lower and Verizon Communications Inc.’s slipped after the Internet portal agreed to sell its main web business to the wireless carrier. Carmike Cinemas Inc. gained 0.6 percent after AMC Entertainment Holdings Inc. sweetened its offer to buy it.
“Earnings are the key this week, but there’s also the Fed, the Bank of Japan and the Democratic National Convention, so you have a lot of things that go right or wrong,” said John Canally, chief economic strategist at LPL Financial, which oversees about $479 billion in Boston. “We’ve run the market up to new all-time highs at peak valuations, so we have to hit a home run on earnings to get much higher from here.”
The S&P 500 reached a seventh all-time high in 10 sessions on Friday, after going more than 13 months without a record. The advances came as companies showed signs of breaking a four-quarter-long decline in sales, fueling optimism that a long-awaited rebound in earnings is at hand. Still, further stock gains may be harder to combine, according to Kully Samra, a client manager at Charles Schwab Corp., which has $2.4 trillion in client assets.
“We’ll continue in this bull market, but we are in a mature phase and the argument around valuations has not gone away,” Samra said from London. “Valuations will remain stretched so gains are much harder to make.”
The rally took the S&P 500 up 6.4 percent this year, recovering from the slump after the U.K. vote to quit the European Union. Since its February low, it’s regained 19 percent, taking its valuation to more than 17 times estimated earnings for the next 12 months. Better-than-forecast economic data have lifted odds of a Federal Reserve interest-rate increase, with traders pricing in a 45 percent chance of higher borrowing costs by December, up from just 12 percent at the start of July.
The next Fed rate decision will be on Wednesday, and economists and investors expect no change. Chair Janet Yellen’s approach to policy this year has been to wait for overwhelming evidence, a strategy aimed at nursing the economy through the uncertainties of global shocks while puzzling over head-scratchers that include low productivity and how much support is Fed policy really providing to growth.