Fading Oil Rally Keeps a Lid on US Stocks – Wall Street Journal

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Energy shares rallied Thursday, but major U.S. stock indexes were little changed ahead of a key reading on U.S. employment.

Investors have been cautious for most of the week, questioning the strength of a recent rally amid a gloomy earnings season and tepid global growth.

One sign of investors’ trepidation about the market and economy is that haven assets have remained strong. Gold prices, for example, are up 20% this year, while the yield on the 10-year Treasury note is off 0.5 percentage point so far this year. On Thursday, the yield on the 10-year note fell to 1.756%, from 1.786% on Wednesday. Bond prices rise as yields fall.

The monthly U.S. jobs report, which is due Friday, will give investors an update on the U.S. economy and could shape expectations about the Federal Reserve’s interest-rate policy outlook.

Meanwhile, energy shares in the S&P 500 gained 0.7% Thursday as oil prices climbed.

U.S. crude oil breached $46 a barrel, the fourth session in which it has risen above that level this year, but the rally faded throughout the afternoon and prices settled up 1.2% at $44.32 a barrel.

The gains came amid threats to output in Libya, where there is political infighting, and Canada, where several oil-sands companies are shutting down or slowing operations because of fires in Alberta. However, analysts still caution that the rally might not be sustainable, with oil stockpiles hovering around record highs world-wide.

The rise in energy shares wasn’t enough to counter weakness elsewhere, such as in consumer-discretionary companies in the S&P 500, which fell 0.6%.


“There’s nothing good [today] other than the fact that oil prices are higher,” said Ilya Feygin, managing director at broker WallachBeth.

The S&P 500 fell 0.49 point to 2050.63. The Dow Jones Industrial Average rose 9.45 points, or 0.1%, to 17660.71, its smallest gain since November. The Nasdaq Composite fell for a third session in a row, losing 8.55, or 0.2%, to 4717.09.

“Conviction on anything is very low,” said David Hussey, a managing director at Manulife Asset Management.


L Brands
LB


-12.04
%




was the biggest laggard in the S&P 500, dropping $9.65, or 12%, to $70.53. Shares of the Victoria’s Secret parent posted their biggest one-day percentage drop since February 2009, after the company reported lower-than-expected sales growth.

Tesla Motors
TSLA


-4.96
%




fell 11.03, or 5%, to 211.53 after the electric-car maker late Wednesday said its first-quarter loss nearly doubled from a year ago.

Kraft Heinz
KHC


3.74
%




gained 2.99, or 3.7%, to 82.97 after the packaged-food company reported a higher quarterly profit.

Merck
MRK


-1.31
%




lost 72 cents, or 1.3%, to 54.09 after the pharmaceutical company posted a decline in quarterly revenue.

First-quarter profits for S&P 500 companies are on track to fall 7.1% in the first quarter from a year earlier, according to FactSet. It would be the fourth-consecutive decline.

That slump could boost stocks later in the year because companies will have a lower bar to compare their results against, said Rob Sharps, a portfolio manager at T. Rowe Price Group. But stocks could fall in the near term amid continued concerns about the global economy and weak corporate profits, he said. “I don’t think we’re up and away from here,” Mr. Sharps said.


The Stoxx Europe 600 index rose 0.3% to 332.86. Optimism over oil’s early rally outweighed news of a slowdown in growth in China’s services sector.


Write to Leslie Josephs at leslie.josephs@wsj.com and Timothy Puko at tim.puko@wsj.com