U.S. Stocks Drop for Week as Investors Await Fed Signals

Photographer: Scott Eells/Bloomberg

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Photographer: Scott Eells/Bloomberg

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

U.S. stocks fell for the week, sending benchmark indexes lower for the third time in four weeks, as investors speculated whether the Federal Reserve will signal a reduction of stimulus efforts after its next meeting.

Financials fell the most out of 10 groups in the Standard & Poor’s 500 Index, declining 2.1 percent. American Express Co. (AXP) sank 6.5 percent after Barclays Plc lowered its rating on the credit-card issuer. Lululemon Athletica Inc. tumbled 19 percent after announcing Chief Executive Officer Christine Day will leave the company. Gannett Co., the publisher of USA Today, jumped 20 percent after agreeing to buy Belo Corp.

The S&P 500 lost 1 percent to 1,626.73 for the week. The benchmark equity gauge declined for four out of the five days, trimming its gains for the year to 14 percent. The Dow Jones Industrial Average decreased 177.94 points, or 1.2 percent, to 15,070.18.

“We’ve had a good year so far and we’re now waiting for the Fed’s response,” David Kelly, the chief global strategist at JPMorgan Funds in New York, said by telephone. His firm oversees about $400 billion in mutual funds. “People have latched onto this theme of whether the Fed will stop being easy and what that means for interest rates. I don’t think that’s a significant negative for the stock market and the market may be overreacting.”

The Fed will hold its two-day policy meeting June 18 and 19, with Chairman Ben S. Bernanke scheduled to speak after the central bank’s decision. Investors are watching for signs on whether the Federal Open Market Committee will trim its pace of $85 billion in monthly asset purchases and maintain record-low interest rates.

Japan Stimulus

Equities fell during the week as the International Monetary Fund cut its outlook for U.S. growth in 2014 to 2.7 percent from 3 percent. Stocks also slid as Bank of Japan Governor Haruhiko Kuroda said he sees no need to expand monetary stimulus immediately.

U.S. economic data showed initial jobless claims declined in the previous week and sales at retailers rose in May. Consumer confidence in June eased from a six-year high and U.S. industrial production was unchanged in May, reports showed.

Stimulus from the Fed and better-than-forecast earnings have propelled the bull market in U.S. stocks into a fifth year and driven the S&P 500 (SPX) up 140 percent from a 12-year low in 2009. The gauge has fallen 2.5 percent from its record high on May 21, the day before Bernanke suggested the central bank could curtail its bond purchases, known as quantitative easing, if the economy improved in a “real and sustainable way.”

‘Escape Velocity’

“It’s a little disconcerting that the market has to depend on the Fed for its success right now,” Bruce Bittles, the chief investment strategist at Milwaukee-based RW Baird & Co., which oversees about $100 billion, said by phone. “Economic data hasn’t caused me to believe that the economy is set on escape velocity.”

Concerns over economic growth and the pace of central-bank bond buying have led to widening swings in U.S. shares. The Chicago Board Options Exchange Volatility Index (VIX), or VIX, rallied 13 percent to 17.15 for the week. The index, a benchmark gauge for American stock options, is down 4.8 percent this year.

The KBW Bank Index (BKX) tumbled 2.3 percent for the week, as 22 of its 24 lenders declined. Citigroup Inc., the third-largest U.S. bank by assets, sank 4.6 percent to $49.22.

American Express slipped 6.5 percent, its biggest decline in more than a year, to $72.97. Barclays lowered its rating on the biggest credit-card issuer by purchases to equal-weight from overweight, saying the stock’s valuation could fall on “soft” revenue trends that could crimp earnings growth.

Cooler Weather

DuPont Co. fell 5 percent to $52.68. The country’s largest chemicals producer said its per-share operating profit will drop about 10 percent in the first half from a year earlier as wetter, cooler weather hurts its agriculture and nutrition and health units.

Energy stocks tumbled 1.7 percent and technology companies erased 1.5 percent as a group. Microsoft Corp., the world’s largest software maker, lost 3.6 percent to $34.40.

Lululemon (LULU) plunged 19 percent to $66.15 after saying Day will step down once a replacement is found. Sales have tripled in the past three years and the shares had risen more than fivefold since June 27, 2008, the day before she became CEO of the Canadian yogawear retailer. Day’s reputation took a hit earlier this year when the Vancouver-based company was forced to recall pants that became transparent when wearers bent over.

Gannett, Safeway

Gannett surged 20 percent to $24.99. The McLean, Virginia-based company agreed to buy Belo for about $1.5 billion. The acquisition will make Gannett the fourth-largest owner of network affiliates, almost doubling the number of TV stations to 43 from 23 and reducing its dependence on its shrinking newspaper business.

Belo jumped 21 percent to $14.01.

Safeway Inc. rose 7.3 percent to $24.36 after agreeing to sell its Canadian stores to Empire Co.’s Sobeys Inc. unit for about C$5.8 billion ($5.7 billion). The second-largest U.S. grocery-store chain will use proceeds from the sale to pay down $2 billion in debt and buy back stock.

Groupon Inc. (GRPN) rose 10 percent to $7.65. Deutsche Bank AG upgraded the stock to buy from hold, citing optimism that increasing use of the company’s mobile application can boost sales.

To contact the reporters on this story: Katie Brennan in New York at kbrennan23@bloomberg.net; 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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