Dow, S&P close near the flatline despite oil's plunge; earnings eyed

Published Mon, Oct 19 20154:10 PM EDTUpdated Mon, Oct 19 20154:15 PM EDT

Fred Imbert @foimbert

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U.S. stocks closed narrowly higher Monday, as investors prepare for a deluge of earnings while digesting Chinese economic data and a tumble in energy prices.

"I think it's earnings-driven," said J.J. Kinahan, chief strategist at TD Ameritrade.

Over a fifth of S&P 500 companies are scheduled release quarterly results this week. Banking giant Morgan Stanley posted earnings per share 20 cents below estimates before the bell, with revenue also disappointing.

"Morgan Stanley earnings were disappointing," Kinahan said. "Halliburton was expected to be poor; somehow they managed to do worse than that."

Halliburton reported better-than-expected earnings per share, but missed on revenue. Toymaker Hasbro also beat on earnings, but missed on revenues.

IBM is due to report after the bell.

"We're waiting for ... tech earnings this week because they are a window into whether or not companies are spending," said Kim Forrest, senior equity analyst at Fort Pitt Capital. "IBM is really good in that they cut through services, software and hardware."

Other tech giants due to report this week include Yahoo, Google's parent company Alphabet, Microsoft and Amazon.com.

Earnings reports thus far "have been more of the same from last quarter," said Nick Raich, CEO of The Earnings Scout. "It's all about the earnings per share."

Raich also said that, of the 58 companies that had reported as of Friday's close, 71 percent had beaten Wall Street's estimates for EPS, but only 47 percent had beaten on revenue. "The theme for 2015 has been strong earnings and weak revenues," he said.

U.S. equities opened lower, with all major indexes falling about 0.3 percent, before trading in a narrow range for most of the session. The Nasdaq Composite rose as it tracked iShares Biotechnology ETF (IBB), which rose more than 2 percent at its highs.

IBB intraday chart

Source: FactSet

S&P and the Dow traded slightly lower for most of the session before eking out slight gains.

"2040 was support (for the S&P) for most of 2015; now it's resistance," said Adam Sarhan, CEO of Sarhan Capital.

Overnight, China reported a third-quarter gross domestic growth figure of 6.9 percent, slightly above the expected 6.8 percent, but also its lowest in six years. China also reported industrial production rose 5. percent, below the expected 6 percent increase.

"We're less concerned about the global growth story than we were in August," said Art Hogan, chief market strategist at Wunderlich Securities. "It's not to say China's out of the woods, but it's stabilizing."

China's growth data took its toll on the commodities space, which saw U.S. crude futures close down 2.90 percent at $45.89 a barrel, while Brent futures dropped over 3.5 percent. The energy sector in the S&P fell more than 2 percent.

"We've probably seem the lows on oil, but it's going to take some time to consolidate," said Maris Ogg, president at Tower Bridge Advisors. "The news long-term is improving, it's near-term (outlook) is still very choppy.

Gold futures also settled down $10.30 to $1,172.80 per ounce, below their 200-day moving average of $1,175.80.

Also weighing on commodities was the dollar, said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

"The dollar's been weakening pretty steadily, so it may be overdue for a bounce," he said.

The euro hit a 10-day low against the dollar before trading at $1.1321, down about 0.2 percent. The dollar also rose about 0.40 percent against a basket of currencies.

An employee works on an assembly line producing Mercedes-Benz cars in Beijing, August 31, 2015.

China's Q3 GDP data: Quick facts

Investors also looked at housing data for more clues about the strength of the U.S. economy, with the latest NAHB/Wells Fargo Housing Market index reading coming in at its highest in a decade.

"We are approaching the point where it will make sense to buy instead of rent as the rent increases will likely be more persistent in coming years than home price gains due to the secular decline in homeownerhip rates," Peter Boockvar, chief market analyst at The Lindsey Group, said in a note.

Wall Street will have more housing data to digest this week, with housing starts due Tuesday, weekly mortgage applications on Wednesday and the FHFA House Price index and existing home sales due Thursday.

"This week is going to tell us which way the market is going (moving forward)," Ogg said. "People are having second thoughts about the strength of the economy."

Wall Street also digested prepared remarks made by Federal Reserve official Lael Brainard, who urged officials to ease the regulatory burden on small banks.

"Exempting banks with less than $10 billion in assets from its requirements would significantly help reduce burden on smaller institutions," she said.

Richmond Fed President Jeffrey Lacker was scheduled to speak at noon, but had to cancel due to illness. Other Fed speakers this week include Fed Governor Jerome Powell, New York Fed President William Dudley and Fed Chair Janet Yellen, who is scheduled to deliver welcoming remarks at a conference in New York City.

"They're going to keep the market guessing as to when (they) will raise rates," said Peter Cardillo, chief market economist at Rockwell Global Capital. "The Fed doesn't want to commit to a rate hike because they follow global events."

Hogan said "there's a majority of Fed (officials) who would like to lift off this year ... but I think they will push this decision til next year."

After Yellen delivers her remarks, there will be no more Fed speeches until after the the central bank's Federal Open Market Committee meeting.

"I think the next catalyst that could send stocks higher is the Fed.s FOMC meeting," said Robert Pavlik, chief market strategist at Boston Private Wealth.

European stocks closed mixed as the pan-European STOXX 600 rose 0.3 percent, while London's FTSE 100 fell 0.4 percent. The German DAX closed over 0.6 percent higher.

Asian equities ended mixed overnight, with the Shanghai Composite falling 0.11 percent, while the Hang Seng closed narrowly higher.

In corporate news, German banking giant Deutsche Bank announced Sunday a company-wide restructuring plan that will "fundamentally change" how it does business, splitting its investment bank into two businesses and parting ways with some key officials.

McDonald's stock was added to Credit Suisse's "US Focus List" and said it considered it one of its "top investment ideas."

United Continental has not updated the condition of CEO Oscar Munoz after being admitted to the hospital Thursday.

Major U.S. Indexes

The Dow Jones industrial average closed up 14.57 points, or 0.08 percent at 17,230.50, led higher by Nike while Chevron and ExxonMobil led decliners.

The ended up 0.55 points, or 0.03 percent, at 2,033.66, with consumer discretionary leading five sectors higher and energy the greatest laggard.

The Nasdaq closed 18.78 points higher, or 0.38 percent, at 4,905..47, with the IBB and Apple closing up 0.52 percent and 0.62 percent, respectively.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 15.

U.S. 10-year yields near 2.02 percent, while two-year note yields traded near 0.60 percent.

Decliners led advancers 8 to 7 at the New York Stock Exchange with an exchange volume of 435.90 million and a composite volume of 1.671 billion.

On tap this week:

Monday

Earnings: IBM, Flextronics, Crown Holdings, Celanese, Six Flags