U.S. Stocks Decline as Investors Await Fed Minutes
<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 Lu Wang & Alex Barinka - Aug 22, 2013 12:28 AM GMT+0800</cite>
U.S. stocks fell, with the Dow Jones Industrial Average on track for its longest slump in 13 months, as investors weighed retailer earnings and home-sales data and awaited minutes from the Federal Reserve’s July meeting.
Staples Inc. (SPLS) plunged 14 percent after declines in its retail and international business sparked in a reduction in its earnings forecast. Target Corp. slid 3.6 percent as profit fell 13 percent amid consumers’ caution in the face of higher taxes and unsteady employment. Lowe’s Cos. jumped 4.9 percent as the second-largest U.S. home-improvement retailer raised its full-year projection amid a housing recovery.
The Standard & Poor’s 500 Index (SPX) slipped 0.4 percent to 1,646.19 at 12:27 p.m. in New York. The Dow fell 62.94 points, or 0.4 percent, to 14,940.05. The measure retreated for a sixth day, the longest stretch since July 2012. Trading in S&P 500 stocks was 20 percent below the 30-day average at this time of day.
“Nervousness is building heading into Fed minutes,” Robert Pavlik, New York-based chief market strategist at Banyan Partners LLC, said by phone. His firm manages about $4.4 billion. “There is all this continued worry about tapering. Any comments on the economy, any kind of detailed discussion about the asset purchases, the Street is going to zero in on.”
The S&P 500 has retreated 3.7 percent from its all-time high on Aug. 2 amid speculation the Fed will pare its bond-purchase program, known as quantitative easing, as the economy recovers.
Whipsawed Stocks
Speculation about the stimulus has whipsawed stocks since May, when Chairman Ben S. Bernanke first indicated policy makers could begin reducing the purchases this year if the job market continues to improve. The benchmark index tumbled 5.8 percent from a record high on May 21 through June 24. It then rebounded as much as 8.7 percent to the latest closing record of 1,709.67.
Investors will gain more insight into the central bank’s deliberations when it publishes minutes from last month’s policy meeting at 2 p.m. in Washington. The Federal Open Market Committeewill probably decide to reduce purchases at its Sept. 17-18 meeting, according to 65 percent of economists surveyed by Bloomberg News from Aug. 9 to Aug. 13. Officials meet in Jackson Hole, Wyoming, this week to discuss monetary policy.
The Fed repeated after its July 31 meeting its pledge to maintain bond buying until the U.S. labor market outlook has improved substantially. It also vowed to keep benchmark interest rates near zero at least as long as unemployment is above 6.5 percent and inflation is no more than 2.5 percent. Data tomorrow is expected to show that initial jobless claims rose last week, according to estimates compiled by Bloomberg.
Housing Data
A report today showed that sales of previously owned U.S. homes climbed more than forecast in July to the fastest pace since November 2009 as more buyers entered the market before further increases in mortgage rates.
The Fed stimulus and better-than-estimated corporate earnings have helped propel the S&P 500 up more than 150 percent from its bear-market low in 2009. Of the 472 companies in the S&P 500 that have reported results this period, while 72 percent have posted earnings that surpassed estimates, their combined income increased 3.4 percent, data compiled by Bloomberg show.
“Slower earnings growth, combined with uncertainty on Fed tapering, has fueled that pull-back,” David Lafferty, senior vice president and investment strategist for Natixis Global Asset Management in Boston, said in a telephone interview. His firm manages $780 billion. “It wouldn’t surprise if the market took a bit of a pause.”
The Chicago Board Options Exchange Volatility Index (VIX), or VIX, jumped 9.7 percent to 16.36 today, the highest since July 2. The equity volatility gauge is down 8.5 percent this year.
Industry Groups
All 10 S&P 500 main industries retreated except for technology companies. Utility shares fell the most, sinking 1.2 percent, as yields on 10-year Treasury notes approached the highest level in two years, cutting demand for dividends.
Utility companies offer a dividend yield of 4.1 percent, ranking the highest among 10 industries after telephone stocks. The two groups slumped more than 7.6 percent in the past three months for the worst performance in the S&P 500.
Staples tumbled 14 percent, the most in a year, to $14.56. The world’s largest office-supplies chain, which suffers from waning consumer demand for products such as ink and toner and computer accessories, cut its outlook after second-quarter results were weaker than it expected.
Target (TGT) slipped 3.6 percent to $65.53. The second-largest U.S. discount retailer joins Wal-Mart Stores Inc. and Macy’s Inc. in reporting results that showed the bumpy economy and increased Social Security taxes are making consumers reluctant to spend beyond necessities.
Programming Error
PetSmart (PETM) Inc. dropped 4.2 percent to $71.83. The pet-store chain forecast earnings of 83 cents to 87 cents a share in the third quarter. Analysts, on average, estimated 87 cents, according to a Bloomberg survey.
American Eagle Outfitters Inc. plunged 9.9 percent to $14.76. The clothing retailer’s second-quarter sales fell short of analyst estimates.
Goldman Sachs Group Inc. slipped 1.4 percent to $157.40. A programming error caused the firm to send unintentional stock options orders in the first minutes of trading, pushing prices on dozens of contracts to a dollar each, according to a person briefed on the matter yesterday and data compiled by Bloomberg.
Any losses for Goldman Sachs, the fifth-largest U.S. bank by assets, won’t be known until exchanges determine which contracts should be canceled, said the person, who requested anonymity because the information is private.
Lowe’s rose 4.9 percent to $46.24. The second-largest U.S. home-improvement retailer posted second-quarter profit that topped analysts’ estimates and raised its forecast for the year as the housing recovery fuels spending on remodeling.
Incyte Corp. surged 28 percent to $34.55, the highest since November 2000. The drugmaker said a Phase 2 study indicated its Jakafi inhibitor showed a benefit for treating patients with pancreatic cancer.
To contact the reporters on this story: Lu Wang in New York at [email protected]; Alex Barinka in New York at [email protected]
To contact the editors responsible for this story: Lynn Thomasson [email protected]
