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U.S. Stocks Fall From Record Before Fed Stimulus Decision

Photographer: Scott Eells/Bloomberg

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

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

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Photographer: Scott Eells/Bloomberg

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

U.S. stocks fell, after the Standard & Poor’s 500 Index rose to a third straight record, as investors assessed economic data and earnings before the Federal Reserve’s decision on whether to cut monetary stimulus.

LinkedIn Corp. lost 8.1 percent after its quarterly sales outlook missed analysts’ predictions. Western Union Co. tumbled 12 percent after saying costs tied to regulatory compliance will prevent operating profit from rising next year. General Motors (GM) Co. gained 3.2 percent as quarterly profit topped estimates. Buffalo Wild Wings Inc. (BWLD) surged 8.1 percent after raising its full-year earnings forecast.

The S&P 500 (SPX) dropped 0.3 percent to 1,767.29 at 1:30 p.m. in New York. The Dow Jones Industrial Average slid 17.79 points, or 0.1 percent, to 15,662.56. The gauge earlier briefly surpassed its intraday record after closing yesterday at an all-time high. Trading in S&P 500 stocks was 4.2 percent below the 30-day average at this time of day.

“We had our gains yesterday, today you’re seeing some caution ahead of the Fed statement,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion of assets, said by telephone. “With the market at record levels, investors want to lock in gains on the off chance that the Fed statement isn’t as thoroughly and purely accommodative as expectations suggest.”

The S&P 500 rose 0.6 percent yesterday to set a record for a third straight day, as corporate earnings exceeded estimates and declines in retail sales and consumer confidence stoked speculation the Fed will maintain its bond purchases.

Equity Valuations

The central bank’s stimulus helped propel the stock gauge up more than 160 percent from a 12-year low in 2009. The index has jumped 24 percent this year and is headed for its best annual gain since 2003.

While the rally has lifted equity valuations to a four-year high, with the index trading at 16 times estimated operating earnings, that’s still below the multiples at the market’s two previous peaks, when the ratio reached 16.5 in October 2007 and 25.7 in March 2000, data compiled by Bloomberg show.

The S&P 500 has rallied 5.1 percent in October, heading for the biggest monthly gain in two years, as lawmakers ended a 16-day government shutdown and agreed to extend the U.S. borrowing authority, avoiding a possible debt default.

The Federal Open Market Committee concludes a two-day monetary-policy meeting today. The central bank will maintain stimulus measures at the current level until March 2014, economists forecast in a Bloomberg survey this month.

Economic Assessment

Financial-market participants will focus on any changes in the Fed’s assessment of the economy, according to Pacific Investment Management Co.’s Mohamed El-Erian.

“In particular, to get some handle on the impact on the congressional dysfunction and what that means for their growth projections,” El-Erian, chief executive and co-chief investment officer at the world’s biggest manager of bond funds, said in an interview on Bloomberg Television with Scarlet Fu and Michael McKee.

A private report today based on payrolls showed companies added fewer workers than projected in October, indicating the U.S. job market lost momentum amid the budget strife. The partial government shutdown will reduce economic growth by 0.3 percentage points this quarter at an annual rate, according to a Bloomberg News survey of economists.

The Labor Department will release its monthly employment report for October on Nov. 8, a week later than initially scheduled because of the shutdown.

Inflation Gauge

A separate report today indicated the cost of living in the U.S. rose as projected in September as fuel charges climbed, capping the smallest year-to-year gain in five months. Inflation has been running below the Fed’s 2 percent objective in the near-term, giving policy makers room to maintain monetary stimulus.

“Low inflation is really allowing policy makers to maintain an accommodative stance,” Eric Teal, who helps oversee $5 billion as the chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina, said by phone. “Job growth looks to remain challenging so we think that existing policies are likely stay in place for an extended period.”

Starbucks Corp. is among 35 members of the S&P 500 to report results today. Facebook Inc., which is not in the gauge, will also report after the regular session ends.

Earnings Scorecard

Profits for the broad equity gauge probably increased 3.7 percent during the third quarter as sales climbed 2.4 percent, according to analysts’ estimates compiled by Bloomberg. Earnings have grown by an average of 5 percent among the 312 companies that have reported so far, while sales have gained 2.9 percent.

All 10 main S&P 500 groups dropped today. Phone and energy stocks fell the most, losing at least 0.4 percent. Verizon Communications Inc. slid 1 percent to $50.59 for the second-biggest decline in the Dow.

LinkedIn (LNKD) lost 8.1 percent to $227.12 as the world’s biggest professional-networking site said fourth-quarter revenue will be $415 million to $420 million. That trailed the average analyst estimate of $438.9 million.

Yelp Inc., owner of a website that lets consumers review local businesses, sank 5.3 percent to $65.17 after reporting a wider-than-estimated loss.

Money Transfer

Western Union Co. tumbled 12 percent to $16.89 for the biggest slide in the S&P 500. The largest money-transfer business reported a drop in third-quarter profit. Operating income won’t increase next year because of additional investments needed to comply with new and existing regulations, Chief Executive Officer Hikmet Ersek said.

U.S. Steel Corp. slid 3.7 percent to $24.53. The largest U.S. producer of the metal will permanently close parts of two plants as it cuts costs after four unprofitable quarters. The company was downgraded to hold from buy at Deutsche Bank by equity analyst David Martin.

General Motors gained 3.2 percent to $37.20. The largest U.S. automaker posted third-quarter profit that beat estimates as North American earnings, boosted by redesigned large pickups, helped buffer international losses.

Buffalo Wild Wings jumped 8.1 percent to $140.05 after saying late yesterday it expects full-year earnings growth of 28 percent, up from a previous estimate of 25 percent. That implies adjusted profit of $3.83 a share, surpassing the average analyst projection of $3.64.

Games, Packaging

Electronic Arts Inc. rallied 7.7 percent to $25.98 for the biggest gain in the S&P 500. The second-largest U.S. video-game publisher was raised to strong buy from hold by Needham & Co. by equity analyst Sean McGowan.

Sealed Air Corp. jumped 7.9 percent to $30.78. The manufacturer of packaging materials raised its full-year profit forecast above analyst estimates.

Gilead Sciences Inc. gained 4.5 percent to a record $72.62. The drug maker reported third-quarter adjusted profit that beat analyst estimates as antiviral revenue rose 14 percent. The company raised its product sales forecast for the year.

To contact the reporters on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net; Nick Taborek in New York at ntaborek@bloomberg.net

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

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