Dow, S&P 500 dip as energy shares tumble

The S&P 500 and the Dow Jones Industrial Average dipped on Wednesday as energy stocks suffered their worst drop in nearly six months. The energy sector, slumped 2.5 percent for its biggest decline since mid-September. Oil prices tumbled more than 5 percent in the wake of a much stronger-than-expected rise in US inventories.
"Good news had certainly been out there in terms of production cuts," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York. "Now you see, especially on the US side, inventory builds and shale producers making some good money at these levels so production comes back on line." Also moving lower were interest rate-sensitive real estate stocks, off 1.5 percent, after the ADP National Employment report showed the US private sector added 298,000 jobs last month, well above expectations for a 190,000 increase. The robust data set the stage for Friday's nonfarm payrolls report, which includes private and public sector jobs and is seen as a barometer of the US economy. With a small chance of a weak payrolls report, the US Federal Reserve is more likely to raise rates at its meeting next week.
Traders now price in an 85.2-percent chance of a rate increase, according to Thomson Reuters data, up from 30 percent at the start of last week following hawkish comments from a string of Federal Reserve officials, including Chair Janet Yellen. Wall Street's main indexes remain close to all-time highs, driven by anticipation of pro-growth policies under President Donald Trump. However, as details remain scarce on his plans, gains have moderated and concerns about stock valuations are more pronounced.
The S&P 500 is trading at about 18 times forward earnings estimates against the long-term average of about 15 times, according to Thomson Reuters data. The Dow Jones Industrial Average fell 69.17 points, or 0.33 percent, to 20,855.59, the S&P 500 lost 5.41 points, or 0.23 percent, to 2,362.98 and the Nasdaq Composite added 3.62 points, or 0.06 percent, to 5,837.55.
Caterpillar fell 2.8 percent after the New York Times said it reviewed a report commissioned by the US government that accused the heavy equipment maker of carrying out tax and accounting fraud. H&R Block shares surged nearly 15 percent for their best day in over eight years, after the tax preparation company posted its quarterly results. Declining issues outnumbered advancing ones on the NYSE by a 2.74-to-1 ratio; on Nasdaq, a 1.45-to-1 ratio favoured decliners.
The S&P 500 posted 15 new 52-week highs and 13 new lows; the Nasdaq Composite recorded 65 new highs and 47 new lows.About 7.07 billion shares changed hands in US exchanges, slightly above the 6.94 billion daily average over the last 20 sessions.
Snap perks up Shares of Snap Inc bounced back on Wednesday following a steep selloff while an initial rush to short sell the stock appeared to be slowing.
The owner of the Snapchat messaging app had fallen sharply in the previous two sessions as investors focused on its lofty valuation following a $3.4 billion public listing last week that was the hottest technology offering in three years.
Shares of Snap, which has warned it may never be profitable, closed up 6.4 percent at $22.81. Traders betting against Snap on Wednesday added less than $50 million in new short sales of its stock, a slower pace than the day before, when initial short bets jumped to $300 million, according to S3 Partners, a financial analytics firm. Short sellers borrow and then sell stocks they think will fall in value, hoping to profit by buying the stock back more cheaply later on and then returning it to its owner.
Reflecting a higher supply of Snap's shares and potentially less demand, the annual interest rates brokers charged to lend the shares declined to around 15 percent from as much as 40 percent on Tuesday, said S3 Partners Managing Director of Research Ihor Dusaniwsky. By comparison short sellers paid 19 percent to borrow Twitter's stock after its 2013 listing, according to IHS Markit. Traders looking for a piece of the action in Snap will get another way to bet when its options start trading on Friday.