U.S. Stocks Have Worst Week Since June Amid Fed Concern

[Daylight]

U.S. Stocks Have Worst Week Since June Amid Fed Concern

<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 & Katie Brennan - Aug 10, 2013 5:57 AM GMT+0800</cite>
U.S. stocks fell for the week, with benchmark indexes posting the worst losses since June, as better-than-estimated data on trade and service industries fueled concern the Federal Reservemay reduce its stimulus.

JPMorgan Chase & Co. and Bank of America Corp. (BAC) dropped at least 2.6 percent amid federal legal actions tied to their past mortgage-backed bond practices. Homebuilders tumbled 6.6 percent as a group amid concern rising interest rates and slow orders may continue to hurt the industry. International Business Machines Corp. slumped 3.8 percent to its 2013 low on signs of slowing demand for hardware. Tesla Motors Inc. and Groupon Inc. (GRPN) surged as results beat analyst estimates.

Photographer: Pete Marovich/Bloomberg

The Standard & Poor’s 500 Index (SPX) dropped 1.1 percent to 1,691.42. The Dow Jones Industrial Average slid 232.85 points, or 1.5 percent, to 15,425.51. Both gauges capped their worst week since June 21 after closing at records on Aug. 2.

“There is still plenty of skepticism and anxiety in the market,”Hank Smith, who oversees $7 billion as chief investment officer at Radnor, Pennsylvania-based Haverford Trust Co., said by phone yesterday. “The uncertainty of when will the Fed taper? How much will they taper?” he said. “The market has come a long way this year. It will be interesting to see if investors take advantage of this pullback as they did clearly in the pullback in May-June.”

Fed Bets

The weekly drop in stocks came after the S&P 500’s valuationsjumped to their highest levels in more than three years. The benchmark index (VIX) trades at 15.3 projected earnings, up from a multiple of 13.1 at the beginning of this year, data compiled by Bloomberg show.

Speculation that the Fed will pare bond purchases in September as the economy strengthens has whipsawed the market. The S&P 500 sank as much as 5.8 percent over the five weeks ended June 24, before recovering all the losses to hit an all-time high on Aug. 2.

Charles Evans, Sandra Pianalto and Richard Fisher, regional Fed presidents in Chicago, Cleveland and Dallas, said during the week that the central bank may be closer to tapering as the labor market recovers. Fed stimulus has helped propel the S&P 500 up more than 150 percent from its bear-market low in 2009.

Economic Reports

America’s trade deficit narrowed in June to the smallest in almost four years, service industries expanded in July at the fastest pace in five months, and jobless claims fell to the lowest monthly rate since before the recession, economic reports showed during the week. In Asia, the Chinese economy is showing signs of improvement, with data on industrial output, trade and service industries topping economist forecasts.

Some 449 companies in the S&P 500 have reported quarterly results so far this earnings season. Among them, 72 percent have exceeded analysts’ profit estimates and 56 percent havebeaten sales projections, data compiled by Bloomberg show.

“Earnings are pretty much done and tapering is on the way,” Rick Fier, director of equity trading at Conifer Securities LLC in New York, said in an interview. “Catalysts to move us higher are done for the short term. We get the sense that the next move will be lower, nothing terrible but lower seems easier than higher at this point.”

The Chicago Board Options Exchange Volatility Index, or VIX, jumped 12 percent to 13.41 during the week. The equity volatility gauge is down 26 percent for the year. Nine of 10 industry groups in the S&P 500 declined as telephone and financial shares fell the most, sinking at least 1.9 percent.

Federal Investigation

JPMorgan dropped 3.5 percent $54.52. The biggest U.S. bank said it’s under federal criminal investigation for practices tied to sales of mortgage-backed bonds. The Justice Department’s civil division found in May that sales practices broke civil laws after it examined securities tied to subprime and Alt-A loans sold to investors from 2005 through 2007.

Bank of America erased 2.6 percent to $14.45. The Department of Justice accused the company in a lawsuit of misleading investors about the quality of loans tied to $850 million in mortgage-backed securities. The complaint chronicles friction among bank staff in 2007 and 2008 as they excluded risky Alt-A loans while leaving in wholesale debts once scorned as “toxic waste” by the firm’s then-chief.
An S&P index of homebuilders slumped as all of its members retreated at least 4.5 percent. Decelerating orders and potentially higher interest rates may continue to hurt investor sentiment toward the housing industry, Robert Wetenhall, an analyst at RBC Capital Markets LLC, wrote in a note.

PulteGroup Inc. tumbled 9 percent to $15.67 while D.R. Horton Inc. slipped 7.3 percent to $18.89.

Furlough Leave

IBM (IBM) dropped 3.8 percent to $187.82 for the biggest loss in the Dow. The world’s largest computer-services company said U.S. employees in its hardware division will take a furlough week with one-third pay starting either Aug. 24 or Aug. 31.

The company is cutting costs after server demand slowed in the second quarter. Sales in the hardware business, which includes storage devices and microelectronics, slid 12 percent in the period from a year earlier.

First Solar Inc. slid 13 percent, the most in the S&P 500, to $41.02. the largest U.S. solar-panel manufacturer reported lower second-quarter profit as sales slipped 46 percent.

J.C. Penney (JCP) Co. sank 9.9 percent to $12.87. Investor Bill Ackman called for the retailer to oust Chairman Tom Engibous, escalating a public dispute with his fellow directors as he seeks a replacement for Chief Executive Officer Mike Ullman.

China Boost

Raw-material producers were the only group to gain for the week among the S&P 500’s 10 main industries, rising 0.9 percent, amid data that showed a stabilizing economy in China, the world’s biggest consumer for commodities from iron ore to coal.

Cliffs Natural Resources Inc., the largest U.S. iron-ore producer, climbed 18 percent to $24.35 in the week. Peabody Energy Corp., the largest U.S. coal producer, advanced 11 percent to $17.90.

Tesla (TSLA) soared 11 percent to $153. The electric-car company led by Elon Musk posted second-quarter results that surpassed analysts’ estimates on a surge in Model S sedan deliveries.

Groupon Inc. rallied 22 percent to $10.61. The operator of the largest daily-deals website reported a second-quarter net loss that was narrower than analysts forecast. The company, which lost 87 percent of its value in the year after going public in November 2011, named co-founder Eric Lefkofsky as chief executive officer to lead turnaround plans.

Reducing Stocks

Credit Suisse Group AG cut its holdings of equities after global stocks rallied to a five-year high and Fed policy makers began considering whether to trim stimulus measures. Switzerland’s second-largest bank reduced its allocation to stocks to neutral from overweight, meaning it no longer holds more of the asset class than is represented in global benchmarks, according to a note to clients dated Aug. 5.

“The fundamental environment remains attractive, but the markets are overbought in the wake of the recent rally,” Michael Strobaek, the Zurich-based global chief investment officer at Credit Suisse, wrote in the report. The “combination of a positive economic outlook and a further supportive monetary policy seems largely priced into the markets. We therefore see limited upside in the near term,” he wrote.

To contact the reporters on this story: Lu Wang in New York at [email protected]; Katie Brennan in New York at [email protected]
To contact the editor responsible for this story: Lynn Thomasson [email protected]

 

[EyeToEye]

Wall Street ends worst week since June; dollar rises

Workers speak above an electronic information board at the London Stock Exchange in the City of London January 2, 2013. REUTERS-Paul Hackett

By Leah Schnurr
NEW YORK | Fri Aug 9, 2013 4:40pm EDT

(Reuters) - Wall Street closed out its worst week since June on Friday, pulling back from record highs as investors focused on when the Federal Reserve will start to wind down its stimulus program, while the dollar rebounded from a seven-week low.

U.S. stocks ended modestly lower as investors found few catalysts in light volume. For the week, the S&P 500 lost 1.1 percent, after several Fed officials alluded to a decline in stimulus before long. The Fed's support has been a major driver in the rally that has pushed the S&P 500 up more than 18 percent so far this year.

"People are looking ahead to the September FOMC meeting and the prospect that the Fed begins its long-awaited exit strategy," said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

The dollar rebounded slightly on Friday from recent losses, but it ended the week about 1 percent lower. The dollar index .DXY gained 0.2 percent on Friday.

Investors have been betting heavily on dollar strength in recent months, expecting that Fed plans to reduce bond purchases, along with the relative outperformance of the U.S. economy against other markets, would bolster the dollar and drive U.S. yields higher.

The repositioning in these trades dominated moves this week in currencies, bonds and foreign stocks. Along with the big bet on the dollar, bets on Japanese stocks, a falling yen and higher U.S. bond yields were all hit hard this week, causing investors to cover these positions ahead of what looks to be a seasonally slow period in the next two weeks.

Better-than-expected economic figures in Europe have supported the euro and sterling of late. Britain's trade deficit narrowed sharply, supporting the pound, which traded close to the Thursday level of $1.5574 that was its strongest since June 19.

Bond prices were little changed on Friday. The 10-year Treasury note edged up 4/32 in price, to yield 2.578 percent. However, yields are still sharply lower than the levels seen just before the release on August 2 of the monthly U.S. jobs report, which disappointed investors.

The Fed has said it will reduce its $85 billion in monthly mortgage-backed securities and Treasury bond purchases later this year if the economy progresses as expected.

Dallas Fed President Richard Fisher reiterated on Thursday that the central bank remained open to trimming its purchases from September if economic data keeps improving. There was no fresh information on Friday.

Signs of stabilization in China's economy supported European stocks, which closed up more than half a percent, and the data also pushed crude prices higher.

Investors pulled a record $3.27 billion out of U.S.-based funds that hold Treasuries in the latest week, data from Thomson Reuters' Lipper service showed. The outflow from Treasury funds in the week ended August 7 was the biggest since Lipper's records began in 1992.

The Dow Jones industrial average .DJI ended down 72.81 points, or 0.47 percent, at 15,425.51. The Standard & Poor's 500 Index .SPX was off 6.06 points, or 0.36 percent, at 1,691.42. The Nasdaq Composite Index .IXIC lost 9.02 points, or 0.25 percent, at 3,660.11.

But Europe's broad FTSE Eurofirst 300 index .FTEU3 gained 0.6 percent as the data out of China lifted stocks of mining companies higher. World shares .MIWD00000PUS were flat.

Upbeat Chinese data in the past two days helped ease investor concerns that a sharp slowdown in the world's second-largest economy could derail global growth.

China said factory output rose 9.7 percent in July, beating forecasts, and retail sales grew 13.2 percent while inflation held steady. The data added to Thursday's trade figures showing exports from China running at a surprisingly strong pace.

The promising numbers, along with supply disruptions in the Middle East, lifted Brent oil above $108 a barrel. Brent was up $1.52 to $108.20 a barrel, while U.S. crude gained $2.70 to $106.10.

(Additional reporting by Richard Hubbard in London, Caroline Valetkevitch and Julie Haviv in New York; Editing by Leslie Adler)