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U.S. Stocks Fall on Stimulus Speculation Amid Earnings

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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, giving the Standard & Poor’s 500 Index its first two-day slide in three weeks, on speculation the Federal Reserve will scale back stimulus in coming months as investors assessed earnings.

Visa Inc. (V) lost 3.5 percent as the bank-card network said revenue rose less than projected. Avon Products Inc. fell 22 percent after saying possible fines related to foreign bribery probes may hurt earnings. Facebook Inc. (FB) and Exxon Mobil Corp. jumped more than 0.9 percent after earnings topped estimates. Boeing Co. advanced 0.6 percent after saying it would step-up production of its 737 jets.

The S&P 500 dropped 0.4 percent to 1,756.54 at 4 p.m. in New York, after fluctuating between gains and losses during the day. The Dow Jones Industrial Average fell 73.01 points, or 0.5 percent, to 15,545.75. About 7.2 billion shares changed hands on U.S. exchanges, 21 percent above the three-month average.

“The market is re-rating expectations to maybe earlier Fed tapering than consensus,” Andres Garcia-Amaya, New York-based global market strategist at JPMorgan Chase & Co.’s mutual funds unit, said in a phone interview today. His firm oversees $400 billion. “The Fed was a little bit more hawkish than people expected, not a lot, but incrementally more hawkish.”

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Starbucks Corp. slipped 2.3 percent after the largest coffee-shop chain reported slower sales growth in Asia. Close

Starbucks Corp. slipped 2.3 percent after the largest coffee-shop chain reported slower... Read More

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Photographer: Tomohiro Ohsumi/Bloomberg

Starbucks Corp. slipped 2.3 percent after the largest coffee-shop chain reported slower sales growth in Asia.

The S&P 500 (SPX) fell 0.5 percent from a record yesterday, halting four days of gains, as the Fed fueled bets it may begin to cut stimulus in the coming months. The central bank maintained $85 billion in monthly bond purchases, saying that while the economy shows signs of “underlying strength” it needs to see more evidence of sustainable improvement.

Taper Timing

Economists at Citigroup Inc. and Barclays Plc said yesterday’s Fed policy statement opens the possibility of reduced bond purchases as soon as December. The odds of a taper in January rose to 45 percent, from 25 percent before the decision, according to Citigroup. Economists surveyed by Bloomberg Oct. 17-18 had predicted the Fed would begin paring stimulus in March.

“We don’t expect anything really before the March time frame,” David Roda, the Miami-based regional chief investment officer for Wells Fargo Private Bank, said in a phone interview. His firm manages $170 billion. “Even though the jobs data is slowly improving, the pace of improvement has slowed and the quality of job growth is certainly not that great.”

Economic Data

Fed stimulus has helped propel the S&P 500 higher by more than 160 percent from a 12-year low in 2009. The gauge surged 4.5 percent in October, for the biggest monthly gain since July, as lawmakers ended a 16-day government shutdown and agreed to extend the U.S. borrowing authority, avoiding a possible debt default.

Stocks slumped earlier today after a report showed business activity in the U.S. expanded in October as orders and production surged. The MNI Chicago Report business barometer jumped to 65.9 from 55.7 in September, the biggest monthly increase in more than three decades. Readings above 50 signal expansion.

Separate data showed fewer Americans filed applications for unemployment benefits last week as a backlog in California’s reporting cleared.

Earnings Season

The Chicago Board Options Exchange Volatility Index (VIX), the gauge known as VIX that measures options traders’ estimate of future price swings in the S&P 500, rose 0.7 percent to 13.75. The gauge lost 17 percent for the month.

The S&P 500 is trading at 15.9 times its companies’ estimated earnings, the highest valuation since the start of 2010, according to data compiled by Bloomberg.

Two of America’s best known investors are moving in opposite directions in the stock market, with Laszlo Birinyi predicting more gains as David Einhorn takes a more cautious approach.

“As the market continued its relentless climb, we’ve become more conservatively positioned,” hedge-fund manager Einhorn said today on a conference call.

Long positions, which gain on rising asset prices, exceeded short bets by 35 percentage points as of Sept. 30 at Greenlight Capital Re Ltd., the Cayman Islands-based reinsurer where Einhorn oversees investments and serves as chairman. That’s down from about 42 percentage points three months earlier, said Einhorn, who gained fame for betting on a decline in Lehman Brothers Holdings Inc. stock before it collapsed in 2008.

Birinyi Forecast

Birinyi, president of Birinyi Associates Inc., raised his forecast for the S&P 500, predicting a 3.2 percent advance to 1,820 in the next three months.

Birinyi, one of the first money managers to advise clients to buy in 2009, said he purchased calls on an exchange-traded fund tracking the S&P 500, according to a report today. His previous forecast for the U.S. equity benchmark, set Sept. 25, was 1,760.

Exxon, MasterCard and American International Group Inc. are among 34 companies in the S&P 500 reporting results today. Of the 364 companies that have reported results this season, 75 percent exceeded analysts’ predictions for profit, while 53 percent beat sales estimates, data compiled by Bloomberg showed.

Profits for members of the gauge probably increased 3.7 percent in the third quarter as sales climbed 2.4 percent, according to analysts’ estimates compiled by Bloomberg. Analysts project earnings will rise 7.5 percent in the final quarter, and 8.3 percent in the first three months of 2014.

Visa Decline

Nine out of 10 main groups in the S&P 500 fell today, as financial shares slid 1.1 percent for the biggest decline. Consumer-discretionary companies added 0.2 percent as a group.

Visa lost 3.5 percent to $196.67 for the largest decline in the Dow. Fourth-quarter net operating revenue rose 8.9 percent to $2.97 billion, missing the $3.02 billion average estimate of analysts in a Bloomberg survey.

Avon tumbled 22 percent, the most since 1999, to $17.50. The world’s largest door-to-door cosmetics seller posted a third-quarter net loss, while its profit excluding some items fell short of analyst estimates.

Avon and the government have investigated whether former employees in China and other countries bribed officials in violation of the Foreign Corrupt Practices Act. The Securities and Exchange Commission offered a settlement last month with monetary penalties that were “significantly greater” than the $12 million the company had offered, Avon said in a filing today.

Computer Sciences

Computer Sciences Corp. lost 4.5 percent to $49.26. The provider of technology consulting to governments and companies signaled that a probe by the SEC is escalating.

As part of an almost three-year investigation by the SEC, former U.S. executives, along with some current employees outside the country, have received Wells notices from the commission, CSC said today in a filing. The SEC sends a Wells notice to notify that investigators may recommend an enforcement action.

JDS Uniphase fell 11 percent to $13.09. The provider of network analytics for the telecommunications and broadband industries was cut to hold from buy at Jefferies by equity analyst James Kisner after forecasting sales below analyst estimates for this quarter.

Exxon rose 0.9 percent to $89.62 for the biggest gain in the Dow. The largest oil company by market value lifted production for the first time in more than two years and reported third-quarter profit that beat analyst estimates.

Facebook Advances

Facebook advanced 2.4 percent to $50.21, reversing a decline of as much as 5.1 percent, after the operator of the world’s largest social network yesterday reported third-quarter profit that beat analyst estimates.

The shares slid earlier after Facebook said younger teens aren’t using its website as much as they used to and it will limit its news feed advertisements that have driven revenue gains.

Pivotal Research Group LLC upgraded the shares to buy from hold, saying Facebook retains its advantage in ad sales and the negative reaction to comments about lower teen use was overdone.

Boeing gained 0.6 percent to $130.50. The world’s largest plane-maker plans to speed the monthly production tempo of its best-selling 737 jets by 24 percent to 47 a month by 2017, the highest rate ever.

Expedia (EXPE) Inc. rallied 18 percent to $58.97. Adjusted earnings were $1.43 per share in the third quarter, the online travel company said in a statement, more than the $1.36 predicted by analysts.

To contact the reporters on this story: Nick Taborek in New York at ntaborek@bloomberg.net; Sofia Horta e Costa in London at shortaecosta@bloomberg.net

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

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