U.S. Stocks Fall as Fed Minutes Show Support for Tapering

Photographer: Scott Eells/Bloomberg

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Photographer: Scott Eells/Bloomberg

A trader works on the floor of the New York Stock Exchange.

U.S. stocks fell, giving the Dow Jones Industrial Average its longest slump in 13 months, as minutes of the Federal Reserve’s July meeting showed officials support stimulus cuts this year if the economy improves.

Staples Inc. (SPLS) plunged 15 percent after declines in its retail and international business sparked in a reduction in its earnings forecast. Target Corp. slid 3.6 percent as profit fell 13 percent amid consumers’ caution in the face of higher taxes and unsteady employment. Lowe’s Cos. jumped 3.9 percent after the second-largest U.S. home-improvement retailer raised its full-year projection amid a housing recovery.

The Standard & Poor’s 500 Index (SPX) lost 0.6 percent to 1,642.80 at 4 p.m. in New York, the lowest since July 8. The Dow dropped 105.44 points, or 0.7 percent, to 14,897.55. The measure retreated for a sixth day, the longest losing streak since July 2012. About 5.6 billion shares changed hands on U.S. exchanges today, 11 percent below the three-month average.

“The Fed minutes continue to show this clear uncertainty as to when the monetary tightening will begin,” Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank in San Francisco, said in a phone interview. His firm oversees $170 billion. “It will be a seminal moment when they move from the easing they’ve been in for years toward some incremental tightening steps. The minutes are quite clear in the sense that the Fed doesn’t know that we are there yet where the process can begin.”

Mixed Reaction

The S&P 500 fluctuated after the Fed released its minutes at 2 p.m. in Washington, with the gauge at one point erasing losses of as much as 0.8 percent. Growing concern that the Fed would reduce stimulus this year contributed to the index’s 3.4 percent drop from a record close on Aug. 2 through yesterday. Fed monetary support helped propel the benchmark gauge up more than 150 percent from its bear-market low in 2009.

The Federal Open Market Committee’s minutes from the July 30-31 gathering released today showed officials were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year, with a few saying tapering might be needed soon.

FOMC participants continued to expect economic growth to pick up in the second half of 2013 and “strengthen further.” After the July meeting, policy makers affirmed a pledge to continue stimulus until seeing signs “the outlook for the labor market has improved substantially.” July hiring data, released after the meeting, showed the smallest jobs gain in four months and the lowest jobless rate in more than four years.

Economic Data

Data tomorrow is expected to show that initial jobless claims rose last week, according to estimates compiled by Bloomberg. A report today indicated that sales of previously owned U.S. homes climbed more than forecast in July to the fastest pace since November 2009 as more buyers entered the market.

Speculation about the stimulus has whipsawed stocks since May, when Bernanke first indicated cuts could start this year. The benchmark index tumbled 5.8 percent from a record high on May 21 through June 24. It then rebounded as much as 8.7 percent to the latest closing record of 1,709.67.

“Everybody is edgy right now,” Mark Lehmann, president of JMP Securities LLC in San Francisco, said in a phone interview. “People are not convinced about what to do, so you’re susceptible” to big intraday market swings like today, he said.

The Chicago Board Options Exchange Volatility Index, or VIX (VIX), jumped 6.9 percent to 15.94 today, the highest since July 3. The equity volatility gauge erased an earlier gain of 11 percent, falling as much as 1.6 percent before reversing.

Earnings, Dividends

Investors have also been keeping an eye on corporate earnings, which have helped the S&P 500 rally 16 percent this year through yesterday. Of the 474 companies in the S&P 500 that have reported results this period, 72 percent have posted profit that surpassed estimates, data compiled by Bloomberg show.

All 10 S&P 500 main industries fell today. Utility and phone stocks dropped the most, sliding 1.2 percent, as yields on 10-year Treasury notes traded near the highest level in two years, cutting demand for dividends.

Utility companies offer a dividend yield of 4.1 percent, ranking the highest among 10 industries after telephone stocks. The two groups slumped more than 7.6 percent in the past three months, the most in the index.

Staples tumbled 15 percent, the most in more than two years, to $14.27. The world’s largest office-supplies chain, which suffers from waning consumer demand for products such as ink and toner and computer accessories, cut its outlook after second-quarter results were weaker than it expected.

Target, PetSmart

Target dropped 3.6 percent to $65.50, the lowest since March 1. The second-largest U.S. discount retailer joins Wal-Mart Stores Inc. and Macy’s Inc. in reporting results that showed the bumpy economy and increased Social Security taxes are making consumers reluctant to spend beyond necessities.

PetSmart Inc. (PETM) dropped 5.3 percent to $71. The pet-store chain forecast earnings of 83 cents to 87 cents a share in the third quarter. Analysts, on average, estimated 87 cents, according to a Bloomberg survey.

American Eagle Outfitters Inc. plunged 9.9 percent to $14.76. The clothing retailer’s second-quarter sales fell short of analyst estimates.

Goldman Sachs Group Inc. fell 1.5 percent to $157.11. A programming error caused the firm to send unintentional stock options orders in the first minutes of trading, pushing prices on dozens of contracts to a dollar each, according to a person briefed on the matter yesterday and data compiled by Bloomberg.

Goldman Trades

Any losses for Goldman Sachs, the fifth-largest U.S. bank by assets, won’t be known until exchanges determine which contracts should be canceled, said the person, who requested anonymity because the information is private.

Lowe’s (LOW) rose 4.3 percent to $45.97. The second-largest U.S. home-improvement retailer posted second-quarter profit that topped analysts’ estimates and raised its forecast for the year as the housing recovery fuels spending on remodeling.

Garmin Ltd. (GRMN) climbed 5.6 percent to $40.59 for the biggest gain in the S&P 500. The largest maker of navigation devices was boosted to neutral from sell at Goldman Sachs.

Incyte Corp. surged 35 percent to $36.45, the highest since November 2000. The drugmaker said a Phase 2 study indicated its Jakafi inhibitor showed a benefit for treating patients with pancreatic cancer.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Alex Barinka in New York at abarinka2@bloomberg.net

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

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