S&P 500 Gets Something It’s Lacked as Consumer, Drug Shares Jump

(Bloomberg) -- Today’s rebound in the S&P 500 Index highlights what’s lately been a missing ingredient for investors -- gains in a pair of industries whose fortunes are tied to the economy and politics.

For all the blame lobbed at the Federal Reserve, an inconvenient truth for bulls is that the stocks hampering an advance in the U.S. market since it last reached a record are the consumer and health-care stocks that led the seven-year bull market. Both rallied Thursday, helping to push the S&P 500 up 1 percent to 2,147.26 as of 4 p.m. in New York.

It’s been 22 sessions since the main U.S. equity benchmark last achieved an all-time high after a 26-day stretch that brought 10 such records. The gauge has slipped 2 percent since Aug. 15, dragged down by losses of at least 3.7 percent for health-care and consumer stocks. Combined, the groups make up more than one-quarter of the S&P 500’s total weight.

“The lack of participation in these groups is certainly not helping,” said Tom Wilson, senior investment manager and managing director of wealth advisory at Brinker Capital Inc. in Berwyn, Pennsylvania, which oversees $18 billion. Mixed economic data have made it “a little harder to pinpoint” why investors have soured so much on consumer stocks, whereas they’ve started to trade on the potential for a Democratic victory in November with respect to health-care, he said.

“To some degree, the weakness in the big pharma stocks is a result of Hillary Clinton leading in the polls and the market starting to select the sectors that will be winners and losers based on who’s going to be the new president,” Wilson said. Clinton has been a vocal critic of high drug prices, with her remarks sparking selloffs in the group on at least two occasions during the past year.

On Thursday, the S&P 500 brushed off reports showing weaker-than expected retail sales and manufacturing output. It didn’t hurt that Apple Inc. surged to a nine-month high, buttressing the broader market amid continued optimism over the prospects for its new iPhone. But the week is shaping up for a common theme: for the fifth-straight time consumer stocks are trailing the market.

Were it not for strength in technology led by Apple’s 12 percent four-day rally, the recent selloff in U.S. stocks would be worse. That group represents more than one-fifth of the S&P 500’s weight and is the only one among the 10 main industries to advance since the market last hit an all-time high.

Broader gains among tech stocks and energy producers boosted the benchmark gauge after it closed at a two-month low yesterday. Skyworks Solutions Inc. rose 6.4 percent and Intel Corp. gained 2.6 percent, the strongest in two months, to lead chip stocks higher. Oil and gas companies rebounded from the worst two-day drop since June.

The S&P 500 erased an early decline after slipping near its average price during the past 100 days, a level that has served as a floor since Friday’s selloff. The Dow Jones Industrial Average added 177.71 points, or 1 percent, to 18,212.48. The Nasdaq Composite Index increased 1.5 percent, and briefly came within 5 points of erasing its losses since last Thursday’s close. About 6.7 billion shares traded hands on U.S. exchanges, in line with the three-month average.

In addition to reports on retail spending and manufacturers, jobless claims barely rose last week, according to another reading, indicating employers remain comfortable with staffing levels.

“There’s nothing in these numbers that tells us rates should be heading up,” Mark Kepner, managing director and equity trader at Themis Trading LLC in Chatham, New Jersey, said by phone. “Retail sales weren’t great and there’s nothing here that says the economy is about to pick up steam.”

Traders are pricing in an 18 percent chance of a rate increase at the Fed’s meeting on Sept. 21, down from 34 percent at the start of the month and 20 percent before today’s data. Odds for a December hike are now less than 50 percent, down from 59 percent a week ago.

The latest data did little to ease concerns that the economy is still struggling to gain traction. At the same time, speculation has mounted over whether central banks still have enough ammunition to spur growth. Stocks have been whipsawed since last Friday amid conflicting signals from policy makers on how soon rates might rise.

That has broken the market out of a summer torpor, with the S&P 500 capping its fourth move of 1 percent or more in five days, after going 43 sessions without one. The CBOE Volatility Index dropped 10 percent Thursday to 16.30, falling from its highest level since the U.K. secession vote in June. The measure of market turbulence known as the VIX is still on pace for its biggest monthly jump since August 2015.

--With assistance from Oliver Renick and Aleksandra Gjorgievska To contact the reporter on this story: Anna-Louise Jackson in New York at ajackson36@bloomberg.net. To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net, John Shipman