U.S. Stocks Fall as Bernanke Damps Speculation on More Stimulus

U.S. stocks fell, driving the Standard & Poor’s 500 Index to the lowest level of the month, as Federal Reserve Chairman Ben S. Bernanke said he’s not prepared to take immediate action to stimulate the economy.

Raw-material producers, technology and industrial companies lost the most among the 10 main industries in the S&P 500 Index, which erased a gain of as much as 0.7 percent. Marriott International Inc. (MAR) dropped 6.6 percent on a lower-than-estimated earnings forecast. JPMorgan (JPM) Chase & Co. rallied 1.8 percent after investment banking profit surged and more customers paid their credit-card bills on time.

The S&P 500 slipped 0.7 percent to 1,308.87 at 4 p.m. in New York, its lowest level since June 29, as a stalemate continued in Washington on negotiations over the U.S. debt ceiling. The Dow Jones Industrial Average dropped 54.49 points, or 0.4 percent, to 12,437.12 after surging 90 points following JPMorgan’s report.

“The market is going to be volatile until we get the situation in Washington resolved,” said Don Wordell, a fund manager for Atlanta-based RidgeWorth Capital Management, which oversees about $48 billion. “Earnings have been coming in pretty good and corporate balance sheets are in great shape,” he said in a telephone interview. “The economic data reports were positive.”

Bernanke Testifies

Bernanke testified for a second day before lawmakers after saying yesterday he’s prepared to provide more stimulus if needed. Bernanke said today that inflation now is “higher” and “closer” to the central bank’s informal target than was the case in August and that’s one reason why the Fed won’t immediately embark on a third round of bond-buying.

“We’re not prepared at this point to take further action,” he told the Senate Banking Committee.

The S&P 500 (SPX) has rallied 93 percent since March 2009 as the Fed used large-scale asset purchases to buoy the economy and companies posted earnings that beat analysts’ estimates. The index has still fallen 4 percent since April 29 this year on concern the economic recovery is at risk and as Europe’s sovereign-debt crisis grows.

Stocks were also pressured today after Moody’s Investors Service said late yesterday the U.S. government may lose the Aaa credit rating it’s held since 1917 on concern the country’s debt limit will not be raised in time to prevent a missed payment of interest or principal. President Barack Obama is considering summoning congressional leaders to Camp David this weekend to work on a plan to raise the debt ceiling after yesterday’s negotiations on a deficit-cutting plan of at least $2 trillion stalled, two people familiar with the matter said.

‘Game of Chicken’

“Rating agencies don’t tell us anything we don’t know, but Moody’s warning underlines the seriousness of the situation and the game of chicken at Capitol Hill,” said Philip Marey, senior U.S. economist at Rabobank in Utrecht, the Netherlands.

Equities gained early in the day as government data showed retail sales unexpectedly increased and jobless claims fell more than economists estimated. The 0.1 percent increase in retail sales reported by the Commerce Department compared with the median forecast of a 0.1 percent drop in the Bloomberg News survey of 80 economists. Excluding auto sales, purchases were little changed, the weakest performance since July 2010. Separate data showed initial jobless claims fell by 22,000 to 405,000 last week.

Industrial and technology companies retreated 1 percent each, while materials producers lost 0.9 percent.

Attention on Earnings

Earnings are gaining attention as more companies post second-quarter results. S&P 500 profits are forecast to have grown 13 percent in the quarter, the smallest increase in two years, according to data compiled by Bloomberg.

Google Inc. (GOOG) jumped 11 percent to $585.97 at 4:58 p.m. in after-market trading in New York. The owner of the world’s largest Internet search engine reported sales and profit that topped analysts’ estimates, a sign the company is benefiting from an effort to expand into mobile and display advertising.

“The market is being driven by macro events such as the U.S. and European debt crises,” Giri Cherukuri, who helps manage $2.6 billion as money manager and head trader at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “But we’re heading into the heart of earnings season, and people are getting ready for a change towards a market that’ll be focused on the earnings reports of major companies.”

Citigroup Inc. (C), the third-largest U.S. bank, and Mattel Inc. (MAT), the world’s largest toy maker, are among companies reporting earnings tomorrow.

JPMorgan Earnings

JPMorgan, the second-largest U.S. bank, advanced 1.8 percent to $40.35 after the New York-based bank reported its highest half-year profit ever, at almost $11 billion. Second-quarter net income climbed 13 percent from a year earlier, to $5.43 billion, or $1.27 a share, six cents higher than the average estimate of analysts surveyed by Bloomberg.

MBIA Inc. (MBI) jumped 9.2 percent to $10.02. Bank of America Corp., the biggest U.S. bank, has made a preliminary offer to the bond insurer aimed at settling a legal dispute tied to defective mortgages, according to two people briefed on the discussions.

ConocoPhillips (COP) jumped 1.6 percent to $75.61. The Houston, Texas-based oil company said it will separate its refining and marketing and exploration and production businesses.

Yum! Brands Inc. (YUM) climbed 1.4 percent to $56.37 as the owner of the KFC and Pizza Hut restaurant chains boosted its earnings forecast for the year on increasing customer traffic at restaurants in China.

Hartford, Marriott

Hartford Financial Services Group Inc. (HIG) declined 2.8 percent to $24.88. The seller of life insurance and property-casualty coverage said second-quarter net income plunged on catastrophe claims and the cost of asbestos liabilities.

Marriott International Inc. declined 6.6 percent to $34.69 after forecasting earnings that fell short of estimates. The largest publicly traded U.S. hotel chain said third-quarter earnings won’t be higher than 29 cents a share, missing the 30-cent average analyst projection.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Victoria Stilwell in New York at vstilwell@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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