U.S. Stocks Fall on Stimulus Bets Amid Jobs, Factory Data

An employee welds inside the side window of a truck cabin in Dublin, Virginia.

U.S. stocks fell, sending the Standard & Poor’s 500 Index to a one-month low, as jobs and factory data missed estimates and investors speculated whether the Federal Reserve will taper bond purchases.

All 10 S&P 500 industry groups retreated. Alcoa Inc. and Bank of America Corp. dropped at least 2 percent, as raw-materials and financial companies fell the most. An index of homebuilders slumped 1.6 percent as mortgage applications dropped for a fourth straight week. Intel Corp. plunged 2.6 percent for the biggest slide in the Dow Jones Industrial Average. Walgreen Co. climbed 1.3 percent as sales exceeded analysts’ estimates.

The S&P 500 (SPX) dropped 1.4 percent to 1,608.90 at 4 p.m. in New York, the lowest since May 2. The Dow declined 216.95 points, or 1.4 percent, to 14,960.59. More than 6.9 billion shares traded hands on U.S. exchanges today, 10 percent higher than the three-month average.

Today’s economic data “may throw some cold water on this economic growth story continuing,” Bill Schultz, who oversees about $1.1 billion as chief investment officer at McQueen Ball & Associates in Bethlehem, Pennsylvania, said by phone. “So you got this contrast in what the Fed should do. All those cross-currents throw on some caution on the whole market. Investors are taking a pause and a more look-and-see approach than they have in the past, where equities are the only place to be.”

Photographer: Justin Ide/Bloomberg

An employee welds inside the side window of a truck cabin in Dublin, Virginia. Close

An employee welds inside the side window of a truck cabin in Dublin, Virginia.

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Photographer: Justin Ide/Bloomberg

An employee welds inside the side window of a truck cabin in Dublin, Virginia.

Investors considered mixed data today, as a report from ADP Research Institute showed companies in the U.S. hired fewer workers than projected in May amid federal budget cuts and higher taxes. Separate data from the Commerce Department showed U.S. factory orders in April fell short of estimates. A gauge of service industries, which covers almost 90 percent of the economy, rose more than forecast.

Beige Book

Stocks maintained losses after the Fed’s Beige Book showed the economy expanded at a “modest to moderate” pace in 11 of 12 central-bank districts, with broad-based gains ranging from business services to construction and manufacturing. The survey is based on data collected by Fed regional banks on or before May 24.

A Labor Department report on June 7 may show employers added 165,000 people to payrolls last month after a gain of 165,000 in April, according to the median of 85 economists’ estimates in a Bloomberg survey.

The S&P 500 has dropped 3.6 percent since closing at a record high on May 21 as Fed policy makers continue to debate whether the economy is strong enough to begin reducing monetary stimulus.

Fed Debate

Fed Bank of Dallas President Richard Fisher, among the most vocal critics of additional easing, and Fed Bank of Kansas City President Esther George, who has dissented against record stimulus at every policy meeting this year, separately called for a reduction in the central bank’s $85 billion in monthly bond purchases yesterday. Atlanta Fed President Dennis Lockhart said earlier this week that “very mixed” economic data makes him “more cautious” about a near-term reduction.

The Fed stimulus and better-than-expected corporate earnings have propelled the bull market in U.S. equities into a fifth year and driven the S&P 500 up 138 percent from a 12-year low in 2009.

The Chicago Board Options Exchange Volatility Index, or VIX, climbed 7.6 percent today to 17.50. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a six-year low in March and has since surged 55 percent.

Alcoa, Banks

All 10 groups in the S&P 500 fell more than 0.9 percent. Raw-materials and financial companies sank more than 1.7 percent. Alcoa dropped 2.2 percent to $8.20 and Bank of America declined 2 percent to $13.09 for a fourth straight day of losses.

An S&P index of homebuilders sank 1.6 percent as all but one of its 11 members fell. The Mortgage Bankers Association’s index slumped 11.5 percent last week as the highest borrowing costs in more than a year led to a plunge in refinancing.

“Be careful what you wish for,” Rick Fier, director of equity trading at Conifer Securities LLC in New York, said in an interview. His firm oversees $8 billion. “Would you rather have higher rates and a stronger economy or a crappy economy and QE forever? I for one would like higher rates and a stronger economy, but I think people are most concerned with how much just a small uptick in rates had on the home-building sector and everything attached to it.”

Home Depot

D.R. Horton Inc. dropped 1.2 percent to $22.65 for a fourth day of declines. Toll Brothers Inc. slid 1.7 percent to $32.36, an eighth straight loss that left the stock at its lowest since April 22. Home Depot Inc., the largest U.S. home-improvement retailer, was among the biggest drops in the Dow, losing 2 percent to $75.10.

Apple Inc. dropped 0.9 percent to $445.11 after a U.S. trade agency said it infringed a patent owned by Samsung Electronics Co. The decision was the first patent ruling against Apple in the U.S. that affects product sales. It covers the iPhone 4 and iPad 2 3G sold for use on networks operated by AT&T Inc., T-Mobile US Inc. and two regional carriers.

Joy Global Inc. (JOY), the largest maker of underground mining equipment, retreated 2.2 percent to $52.87. Goldman Sachs downgraded its recommendation on the stock to neutral from buy, citing a weaker outlook for after-market demand.

General Motors Co. slid 2.7 percent to $34.02. The U.S. Treasury said it plans to sell 30 million additional shares of the carmaker’s common stock. The Treasury offering, which will include 20 million shares from the UAW union’s GM retiree health-care trust, coincides with the automaker’s inclusion in the S&P 500 as of the close of trading tomorrow.

Fastenal Drops

Fastenal Co. slumped 6.3 percent to $47.70 for the biggest decline in the S&P 500. The retailer of nuts, bolts and other fasteners said daily sales increased 5.3 percent last month. That missed the growth rate of at least 6.5 percent estimated by analysts, according to Wunderlich Securities Inc.

Walgreen advanced 1.3 percent to $48.63. The largest U.S. drugstore chain reported a 2.8 percent increase in May sales at stores open at least one year. That beat the average 1.6 percent gain expected by analysts.

Juniper Networks Inc. jumped 6.6 percent to $18.54 for the biggest gain in the S&P 500. The second-biggest maker of computer-networking equipment is “tracking above historical pattern” so far this quarter as routing spending by service providers picked up, Chief Executive Officer Kevin Johnson said in a presentation at a conference hosted by Bank of America.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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

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