U.S. stocks traded in a narrow range Tuesday, attempting to extend a sharp two-day rally, as investors awaited the official beginning of third-quarter earnings season.
The Nasdaq composite was the biggest decliner, falling over 1 percent in late-morning trading as the iShares Nasdaq Biotechnology ETF (IBB) fell more than 6 percent.
“We saw this dynamic yesterday,” said Art Hogan, chief market strategist at Wunderlich Securities. “If you look at the IBB, it hit support at $291 and saw resistance at $314.”
The Dow Jones industrial average attempted to hold slight gains after a mildly lower open, with UnitedHealth weighing the most on the index. DuPont rose more than 10 percent to contribute the most to to gains.
Materials and energy advanced more than 1 percent as the greatest advancers on the S&P 500, which briefly attempted slight gains.
After the close Monday, the chemical company’s chairman and Chief Executive Officer Ellen Kullman announced plans to retire October 16. Director Edward Breen will serve as interim chairman and CEO. DuPont also cut its outlook for the year and announced an acceleration of its plans to trim expenses.
“Obviously after two strong days of back-to-back gains a little profit taking is the order of the day,” said Peter Cardillo, chief market economist at Rockwell Global Capital. “Any further strengthening in oil could propel stocks higher.”
Crude oil gained over 3 percent to hold above $48 a barrel, while Brent topped $51 a barrel.
“It will be a combination of preparing for earnings and what we’ll see for the next few quarters,” said Peter Boockvar, chief market analyst at The Lindsey Group.
He doesn’t think the bottom has been put into the stock market yet. “Even with the rally of substance we’re still below the major moving averages. The global growth story is weaker,” Boockvar said.
The International Monetary Fund trimmed its global growth forecast for 2015 from 3.3 percent to 3.1 percent, citing weaker growth prospects for emerging economies.
The S&P, Nasdaq and Russell 2000 are trading below their 50-day moving averages. The Dow held above its 50-day moving average but has not closed above it since July 20.
The Dow transports closed above their 50-day moving average of 8.053.46 Monday for the first time since Sept. 17 but traded below that level Tuesday morning.
Before the opening bell, PepsiCo reporting earnings that beat on both the top and bottom line. The firm also raised its full-year growth target. Shares of Pepsi gained more than 1.5 percent in morning trade.
Yum Brands is scheduled to report after the close. The unofficial start to earnings season comes Thursday with Alcoa’s earnings after the bell. The bulk of third-quarter earnings reports come in the next few weeks.
Nick Raich, CEO of The Earnings Scout, said that of the 20 S&P 500 companies that have reported so far, 85 percent have beat on earnings and 60 percent have beat on revenue.
“It’s only 20 companies but it’s an encouraging start to earnings season,” he said. It’s “a lot of consumer companies. We have yet to see a financial company or an earnings company report. … Those are going to drag down the overall earnings.”
Financials will likely see some pressure from the low interest rate environment, Raich said, while energy companies continue to face headwinds from low oil prices.
On the data front, the August trade deficit came in at $48.3 billion, the widest in five months.
Treasury yields spiked before holding lower, with the 10-year at 2.04 percent and the 2-year at 0.60 percent in late-morning trade.
The dollar held lower, with the euro at $1.12 and the yen at 120.18 yen against the greenback.
U.S. stocks closed more than 1.5 percent higher Monday, extending Friday’s surprise intraday reversal, as investors digested the implications of the jobs data on the timing of a rate hike and awaited quarterly earnings.
While some analysts said the gains were a technical bounce from correction levels, others said the weaker-than-expected jobs report led to expectations of lower rates for longer. After the monthly nonfarm payrolls report, Fed funds futures were pricing in expectations that the first rate hike will come no earlier than March 2016.
All three major averages closed Monday within 10 percent of their 52-week highs, or out of correction territory. The Russell 2000 remained in correction mode.
“There’s a good possibility as the first few earnings begin to creep in we could approach 2,000 (on the S&P 500) and cross above that,” Cardillo said.
In Europe, stocks traded slightly higher on Tuesday following Monday’s rebound, after poor industrial data out of Germany.
In Asia, the Nikkei closed 1 percent higher as investors digested news of agreement on the historic Trans-Pacific Partnership and awaited the outcome of the Bank of Japan’s policy meeting Wednesday. The Trans-Pacific Partnership trade deal among the United States, Japan and 10 other Pacific Rim countries still needs approval from the U.S. Congress.
In mid-morning trade, the Dow Jones Industrial Average fell 20 points, or 0.12 percent, at 16,756, with UnitedHealth leading deliners and DuPont leading advancers.
The S&P 500 traded down 11 points, or 0.6 percent, at 1,975, with health care leading seven sectors lower and energy leading advancers.
The Nasdaq traded down 59 points, or 1.24 percent, at 4,721.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 19.93.
Decliners and advancers were about even on the New York Stock Exchange, with an exchange volume of 373 million and a composite volume of 1.722 billion in early afternoon trade.
Crude oil futures for November delivery gained $1.91 to $48.16 a barrel on the New York Mercantile Exchange. Gold futures rose $12.70 to $1,150.30 an ounce as of 11:09 a.m.
Written by Evelyn Cheng of CNBC