U.S. Stocks Drop as Investors Weigh Fed Stimulus Plans
<cite class="byline" style="margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 11px; vertical-align: baseline; background-color: transparent; width: 640px; color: rgb(111, 111, 111); display: block; font-style: normal; line-height: 1.3em; position: static !important; background-position: initial initial; background-repeat: initial initial;">By Nikolaj Gammeltoft - Sep 12, 2013 11:53 PM GMT+0800</cite>
U.S. stocks fell, halting a seven-day win streak for the Standard & Poor’s 500 Index, as materials shares plunges while investors weighed the prospects for Federal Reserve stimulus cuts and watched developments on Syria.
Barrick Gold Corp. dropped 4.4 percent as the precious metal slumped the most in nine weeks.Newmont Mining Corp. (NEM), the largest U.S. gold producer, lost 3.2 percent. Lululemon Athletica Inc. (LULU) tumbled 6.2 percent after cutting its earnings forecast. Pandora Media Inc. jumped 9.3 percent after naming digital-advertising veteran Brian McAndrews as its new chief executive officer.
The S&P 500 fell 0.3 percent to 1,684.86 at 11:52 a.m. in New York, snapping the longest streak of gains since July. The Dow Jones Industrial Average dropped 20.08 points, or 0.1 percent, to 15,306.52. Trading in S&P 500 (SPX) stocks was 2.1 percent below the 30-day average at this time of day.
“The market has had a pretty nice run over the course of the last of couple of weeks,” said Phil Orlando, New York-based chief equity strategist at Federated Investors, which manages about $380 billion in assets. “You’ve recovered most of the correction we saw in August, so now investors are going to be more sensitive to missteps by the administration, Congress and the Fed in these developments over the coming weeks.”
The S&P 500 has rallied 3.2 percent so far in September, rebounding from the worst monthly loss since May 2012, as reports showed China’s economy has strengthened, while concern abated that the U.S. will soon bomb Syria.
Geneva Talks
U.S. Secretary of State John Kerry arrived in Geneva today for at least two days of talks with his Russian counterpart on a proposal for Syria to surrender its chemical weapons. The U.S. and allies blame the regime of Bashar al-Assad for a chemical-weapons attack on Aug. 21 that the U.S. says killed more than 1,400 people near Damascus.
Investors have been scrutinizing data to determine whether the economy is robust enough for the Fed to pare back its record stimulus following its Sept. 17-18 meeting.
A report today showed jobless claims in the U.S. declined last week to the lowest level since April 2006 as upgrades to computer systems in two states caused those employment agencies to report fewer applications.
“We’re going to ignore the report given the Labor Day holiday and this computer problem which calls into question the efficacy of the data,” Orlando said.
Stimulus Bets
Economists estimate the Fed this month will taper its monthly bond buying by $10 billion, to $75 billion, according to the median of 34 responses in a Bloomberg News survey. The stimulus has helped the S&P 500 rally as much as 153 percent since the beginning of the bull market in March 2009.
Speculation about stimulus reductions has whipsawed stocks since May, when Fed officials first indicated cuts could start this year. The S&P 500 tumbled 5.8 percent from a record on May 21 through June 24. It rebounded 8.7 percent to close at its latest all-time high of 1,709.67 on Aug. 2. The gauge then slumped as much as 4.6 percent before the seven-day rally through yesterday brought it back to within 1.2 percent of the record and above the May 21 peak.
The CBOE Volatility Index, the gauge of S&P 500 options prices known as the VIX, rose 1.3 percent to 14. The equity volatility gauge has tumbled 18 percent in September after rallying 26 percent in August, the biggest monthly gain since May 2012. The index moves in the opposite direction to the S&P 500 about 80 percent of the time.
Metals Producers
Gauges of commodity producers and financial companies fell the most among the 10 main industry groups in the S&P 500, while phone shares advanced 0.6 percent. JPMorgan Chase & Co. slid 1.2 percent to $52.63 to pace declines among Dow stocks.
Silver dropped the most in 11 weeks and gold slipped to a four-week low as a report showed euro-area industrial output contracted more than analysts estimated in July. Copper fell to a one-month low.
Barrick Gold, the largest miner of the metal, slipped 4.4 percent to $17.82 as gold dropped 2.5 percent for the biggest slide since July 5. Newmont decreased 3.2 percent to $28.52.
Cliffs Natural Resources Inc., the largest U.S. iron-ore producer, slumped 5.3 percent to $22.38 for the biggest drop in the benchmark index for American equities.
Lululemon Forecast
Lululemon retreated 6.2 percent to $64.77. The yogawear retailer searching for a new chief executive officer cut its profit forecast as new rivals enter its market and shoppers cut spending on clothing.
Earnings per share will be as much as $1.97, down from a previous projection of a maximum of $2.01, the Vancouver-based company said. The average of 29 analysts’ estimates compiled by Bloomberg was $1.99.
Pandora Media added 9.5 percent to $23.41. The biggest online radio service hired McAndrews in a push to lift revenue while fending off competition from Apple Inc. The executive was also named chairman and president, succeeding Joe Kennedy.
The S&P Supercomposite Homebuilding index climbed 1.4 percent amid a gain in 10-year Treasury notes, which pushed yields lower for a second day. PulteGroup Inc. added 1.9 percent to $16.90 while D.R. Horton Inc. gained 0.9 percent to $19.67.
Vertex Pharmaceuticals Inc., a developer of small-molecule pharmaceuticals, rose 0.7 percent to $80.40, and Ametek Inc., a manufacturer of electronic instruments, added 1.7 percent to $45.18. S&P Dow Jones Indices said the two companies will join the S&P 500, replacing Advanced Micro Devices Inc. and SAIC Inc.
AMD dropped 1.2 percent to $3.78 and SAIC added 1 percent to $14.92.
Bull Market
Stocks will continue to rally as the bull market in equities moves into a new phase driven by earnings growth rather than expanding valuations, according to strategists at Goldman Sachs Group Inc.
Equities will produce more moderate returns with lower volatility in the second phase of the bull market, according to Peter Oppenheimer, Goldman’s chief global equity strategist, who reiterated his bullish stance on stocks. Oppenheimer said in a March 2012 report that the prospects for returns from equities versus bonds “are as good as they have been in a generation.”
To contact the reporter on this story: Nikolaj Gammeltoft in New York [email protected]
To contact the editor responsible for this story: Lynn Thomasson [email protected]
