U.S. Stocks Drop as Investors Weigh Stimulus, Shutdown

[KingsOfTheDay]

U.S. Stocks Drop as Investors Weigh Stimulus, Shutdown

<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 - Sep 21, 2013 2:05 AM GMT+0800</cite>
U.S. stocks fell for a second day, after the Standard & Poor’s 500 Index hit a record this week, as concerns grew about the timing of Federal Reserve stimulus cuts and political wrangling over federal spending.

AK Steel Holding Corp. (AKS) plunged 7.5 percent, leading declines among steelmakers, after predicting a third-quarter loss. Rockwell Collins Inc. sank 6.2 percent after its projection missed analysts’ estimates. Darden Restaurants Inc. dropped 6.4 percent after earnings trailed forecast.

The S&P 500 fell 0.6 percent to 1,711.99 at 2:04 p.m. in New York after earlier rising as much as 0.2 percent. The Dow Jones Industrial Average (INDU) lost 120.74 points, or 0.8 percent, to 15,515.18.
“It’s probably a little confusing to the market what’s coming out of the Fed,” John Kvantas, a San Antonio, Texas-basedexecutive director who helps manage more than $16 billion at USAA Investments, said in a phone interview. “Maybe the Fed is trying to send a message that ‘yeah we didn’t taper, but it doesn’t mean we will never taper and maybe actually will taper still quite soon.’”

Trading in S&P 500 stocks was 34 percent above the 30-day average at this time of day as futures and options contracts expire in a process known as quadruple witching that can lead to unpredictable price swings. Announced index changes, such as the addition of Visa Inc., Goldman Sachs Group Inc. and Nike Inc. to the Dow and the S&P 500’s inclusion of Vertex Pharmaceuticals Inc. and Ametek Inc., also take effect after the markets close.

More Evidence

The S&P 500 has climbed 1.4 percent this week, continuing a rebound from its worst month since May 2012 to reach a record on Sept. 18 after the central bank unexpectedly refrained from reducing monetary stimulus. The Federal Open Market Committee said it wants more evidence of an economic recovery before paring its bond purchases. The stimulus helped boost the equity index 155 percent higher since March 2009.

The Fed is now expected to begin tapering asset purchases in December, with 24 of 41 economists surveyed Sept. 18-19 saying the central bank won’t take the first step in slowing its $85 billion in monthly bond buying until then.

Fed Bank of St. Louis President James Bullard , a voter on policy this year who has backed the bond buying, said earlier today the decision not to taper was a close call and “small” cuts are possible next month. Policy makers meet Oct. 29-30.

‘Let’s Wait’

“Weaker data came in,” Bullard said on Bloomberg Television’s “Bloomberg Surveillance” withTom Keene and Michael McKee. “That was a borderline decision,” and “the committee came down on the side of, ‘Let’s wait.’” With inflation low, Bullard said, “we can afford to be patient.”

Kansas City Fed President Esther George, who was the lone dissenter in the last FOMC meeting, said today at the Manhattan Institute for Policy that she sees “substantial” progress in the labor market. She said policy makers’ decision to maintain the pace of bond purchases “created confusion, created a disconnect.”

The debate on when to cut stimulus and by how much has whipsawed stocks since May, when Fed officials first indicated reductions could start this year. The S&P 500 (SPX) tumbled 5.8 percent from a record on May 21 through June 24. It rebounded 8.7 percent to close at a fresh high on Aug. 2 before slumping 4.6 percent as investors increasingly anticipated cuts at the September meeting. The gauge rallied 5.8 percent from that Aug. 27 low to its latest record.

Government Shutdown

Investors are also watching the political wrangling over the approaching limit on federal spending. Government funding expires Oct. 1 and the Treasury is expected to exhaust its ability to borrow funds in mid-October, when it will hit the statutory debt limit.

The U.S. House voted today to finance the federal government through mid-December and choke off funding for President Barack Obama’s health-care law, setting up a showdown with the Senate and the White House. The Senate will consider its version of the funding measure next week. The White House said Obama would veto the House bill.

“When you look at political uncertainty and a fight going forward and the government really faces a shutdown, I don’t know how that can be construed as a positive in the market’s mind,” Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said by phone. “If anything, it just means potentially less economic activity.”

Barclays Projection

The Fed’s decision to maintain the pace of stimulus prompted Barclays Plc to boost its estimate for the S&P 500 to 1,800, the highest 2013 projection among Wall Street equity strategists.

“‘Lower for longer’ monetary policy is more probable than we believed a week ago,” Barry C. Knapp, the firm’s head of U.S. equity strategy, wrote in a note today.

The new forecast implies a 4.5 percent gain from the close of 1,722.34 yesterday and tops the average strategist projection of 1,706, according to data compiled by Bloomberg. Knapp had previously said the S&P 500 would finish 2013 at 1,600.

The Chicago Board Options Exchange Volatility Index (VIX), the gauge of S&P 500 options prices known as the VIX, added 1 percent to 13.29, rebounding from a one-month low yesterday. The measure has declined 27 percent this year.

‘Trend Higher’

“The market, where we are, could be more volatile around key economic data points,” Sam Turner, a fund manager with Richmond, Virginia-based Riverfront Investment Group LLC, said in a phone interview. “Even through volatility could increase, we suspect the trend will still be higher. What the Fed has communicated is that they won’t pull the IV from the patient until the patient can walk on its own.”

Riverfront manages almost $4 billion and has been buying stocks since the August retreat.

Reports next week on data from second-quarter gross domestic product to July housing prices and August sales of new homes will help investors gauge the pace of growth. There are no economic reports scheduled today.

All 10 S&P 500 main industries retreated. Utility and telephone stocks, which offer more than 4.1 percent of their price in dividends for the highest payout among 10 groups, slipped the most, losing at least 1.4 percent, amid concern rising bond yields may curb demand for equity income.

Housing, Steel

The S&P Supercomposite Homebuilding Index slipped 3 percent, with all its 11 members falling.

AK Steel slid 7.5 percent to $4.11. The steelmaker predicted its loss in the third quarter will be 22 cents to 27 cents a share, which includes a 9-cent loss related to a furnace outage in Middletown, Ohio.
U.S. Steel Corp., the largest U.S. producer of the metal, also fell, losing 4.1 percent to $20.31.

Rockwell Collins (COL) sank 6.2 percent to $69.67. The maker of airplane cockpit instruments forecast revenue in fiscal 2014 will be no more than $4.60 billion. That missed the average analyst estimate of $4.93 billion in a Bloomberg survey.

Darden Restaurants dropped 6.4 percent to $46.15. The company’s first-quarter profit trailed analysts’ estimates amid declining sales at its Olive Garden and Red Lobster chains.

Among Dow additions, Visa climbed 0.3 percent to $195.30, Goldman Sachs slipped 1.1 percent to $165.95 and Nike lost 1 percent to $60.81. They will replace Hewlett-Packard Co., which rose 0.5 percent to $21.42, and Alcoa Inc. and Bank of America Corp, which fell 1.5 percent to $8.31 and 0.6 percent to $14.53, respectively.

Vertex retreated 0.8 percent to $75.66 while Ametek declined 0.9 percent to $45.61 before being added to the S&P 500 after the close. Advanced Micro Devices Inc. and SAIC Inc., both of which will exit the benchmark index, dropped 3 percent to $3.83 and 1.4 percent to $15.06, respectively.

To contact the reporter on this story: Lu Wang in New York at [email protected]
To contact the editors responsible for this story: Lynn Thomasson [email protected]