U.S. Stocks Decline as Data Bolster Concern on Stimulus

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Photographer: Justin Lane/EPA

Traders work on the floor of the New York Stock Exchange.

U.S. stocks fell, paring the seventh monthly gain for the Standard & Poor’s 500 Index, as better-than-forecast data on business activity and consumer confidence bolstered concern the Federal Reserve will scale back stimulus.

All 10 groups in the S&P 500 retreated, as health-care, energy and consumer staple stocks led declines. Pall Corp. (PLL) retreated 5.1 percent after lowering an earnings forecast. American International Group Inc. slid 3.8 percent after saying it hasn’t received a deposit in the sale of its plane-leasing unit. Monsanto Co. fell 4.1 percent after an unapproved, genetically modified strain of wheat was discovered growing.

The S&P 500 fell 1.4 percent to 1,630.74 in New York after rising as much as 0.3 percent earlier. The Dow Jones Industrial Average lost 208.96 points, or 1.4 percent, to 15,115.57 today. More than 7.5 billion shares traded hands on U.S. exchanges today, 20 percent higher than the three-month average.

“May will be the seventh month in a row where the S&P 500 has traded higher, and the markets are maybe looking for a reason to pause or consolidate,” Jim Russell, a senior equity strategist in Cincinnati at U.S. Bank Wealth Management, which oversees about $110 billion in assets, said by telephone. “We wouldn’t be surprised to see the market trade sideways to down in the weeks ahead on, call it, slow summer months, questions around Fed tightening and perhaps sluggish earnings growth in the second quarter.”

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Photographer: Victor J. Blue/Bloomberg

People stand outside The Shops at Columbus Circle mall in New York.

Changes by MSCI Inc. to its global and U.S. equity indexes were implemented at the close of trading today, a process that can lead to swings in affected stocks. The additions and deletions of stocks, known as rebalancing, to gauges such as the MSCI All-Country World Index and the MSCI World Index of developed-market equities were announced on May 15.

Consumer Data

The S&P 500 (SPX) retreated today after data showed consumer confidence advanced in May to the highest level in almost six years. Separate reports showed business activity rebounded this month after declining for the first time in more than three years in April, while consumer spending in the U.S. unexpectedly declined last month.

The data renewed concerns that the Fed would curtail its $85 billion in monthly bond purchases after Chairman Ben S. Bernanke said last week the central bank could reduce monetary stimulus, known as quantitative easing, if officials see signs of sustained improvement in growth.

“If the data comes in strong, it really reinforces the message that the Fed has been delivering over the past few weeks and probably justifies the tapering of QE,” Joseph Tanious, a New York-based global market strategist for JPMorgan Funds, which oversees $400 billion, said in a telephone interview.

Weekly Decline

Today’s decline left the S&P 500 down 1.1 percent in the past four trading days for the first two-week drop since November. The benchmark equity gauge advanced 2.1 percent in May, the seventh month of gains for the longest winning streak since September 2009.

“It’s been a wonderful month,” Richard Sichel, who oversees about $1.8 billion as chief investment officer at Philadelphia Trust Co., said by phone. “Sell in May and go away was blown apart. That doesn’t mean there isn’t some nervousness out there and more so since the Fed statement.”

The Chicago Board Options Exchange Volatility Index, or VIX, rallied 12 percent to 16.30. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, rose 17 percent this week after rallying 12 percent in the prior week.

P&G, Pfizer

Procter & Gamble Co. sank 3 percent to $76.76 and Pfizer Inc. erased 3.6 percent to $27.23 for declines that were among the biggest in the Dow.

Pall retreated 5.1 percent to $68.20 for the largest slide in the S&P 500. The producer of water-filtration and purification systems cut its earnings forecast for 2013 to no more than $3.05 a share, below an earlier projection of as much as $3.15 and falling short of the average analyst estimate of $3.08.

AIG slid 3.8 percent to $44.46 after saying it hasn’t received a deposit that was called for under the deal to sell its plane-leasing unit to a Chinese investor group, presenting another challenge to divesting the business.

Newfield Exploration Co. slid 4.4 percent to $23.79. Chairman Lee Boothby filed with the Securities and Exchange Commission to sell 15,103 shares of the oil producer.

Rogue Wheat

Monsanto declined 4.1 percent to $100.64. Japan suspended wheat imports from the U.S., where the government discovered an unapproved, genetically modified strain growing in an Oregon field. Scientists said the rogue wheat was a strain tested from 1998 to 2005 by the world’s top seedmaker. South Korea also increased inspections of feed wheat imports from the U.S.

Palo Alto Networks Inc. (PANW) slumped 11 percent to $48.52. The maker of network security systems’ said sales in the fiscal fourth quarter ending in July will be $106 million to $110 million. The average analyst projection called for revenue of $113.7 million, according to data compiled by Bloomberg.

Dell (DELL) Inc. climbed 0.6 percent to $13.36 as shareholders sued founder Michael Dell, the company’s board and private-equity partners over their bid to take the computer maker private. Investors led by a private investor and the Mid-South Iron Workers Pension Fund said the founder’s $24.4 billion offer to take the company private is underpriced when measured against the recent stock-buyback program and competing valuations proposed by major-stakeholder Carl Icahn.

Inexpensive Cyclicals

Health-care shares plunged 2.2 percent as a group and producers of consumer staples lost 1.8 percent today. While yield-seeking investors drove so-called defensive stocks to among the biggest gains in the S&P 500 in the first quarter, they’ve been lagging other industries since then. Utilities, phone companies and consumer-staple companies are the worst performers, while financials and consumer discretionary stocks have posted the biggest gains.

Savita Subramanian, Bank of America Corp.’s head of equity strategy, said investors should buy inexpensive cyclical stocks that have improved balance sheets, the ability to raise dividends and earnings stability over high-yielding sectors like utility and telephone stocks that have gotten expensive.

JPMorgan Chase & Co.’s Thomas J. Lee also wrote in a note today that the recent focus on Fed tapering may signal a shift from investors’ favoring “bond-like” equities to companies most tied to economic growth. Credit Suisse Group Inc.’s Andrew Garthwaite said that while cyclical companies have outperformed recently, the rally has further to go as U.S. economic momentum is still rising.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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