U.S. Stocks Retreat as Fed Minutes Indicate More Cuts

U.S. stocks fell, after the Standard & Poor’s 500 Index rose to within one point of a record close, as the International Monetary Fund warned of risks to global growth and Federal Reserve indicated stimulus cuts will likely continue.

U.S. Steel Corp. lost 7 percent after the Department of Commerce rejected its claim that South Korea is selling steel tubing in the U.S. below cost. JPMorgan Chase & Co. and Bank of America Corp. lost at least 1.6 percent as financial shares led declines. Nabors Industries Ltd., CF Industries Holdings Inc. (CF) and Garmin Ltd. jumped at least 5 percent after earnings beat analysts’ estimates. Signet Jewelers Ltd. added 18 percent after agreeing to buy Zale Corp. for $21 a share.

The S&P 500 (SPX) slipped 0.7 percent to 1,828.75 at 4 p.m. in New York after climbing as high as 1,847.5. The Dow Jones Industrial Average decreased 89.84 points, or 0.6 percent, to 16,040.56. About 6.9 billion shares changed hands on U.S. exchanges, 8.9 percent above the three-month average.

“So far tapering seems to be orderly and they seem to be committed to it,” Erik Davidson, the San Francisco-based deputy chief investment officer for Wells Fargo Private Bank, which oversees $170 billion, said by phone. “While it is data-dependent, it is long-term data dependent, certainly not short-term-noise data-dependent. Investors should recognize that this is the beginning of a very, very, very long process.”

Weak Data

Investors had dismissed weaker-than-forecast economic data over the past two weeks, helping stocks recover from their worst start of a year since 2010. The S&P 500 had slumped as much as 5.8 percent since reaching a record on Jan. 15 as concern over Fed tapering fueled an exodus in emerging markets. The index has since rebounded, leaving it down less than 1.1 percent in 2014.

U.S. equities rose last week as Fed Chair Janet Yellen pledged to maintain her predecessor’s policies by scaling back stimulus in “measured steps.” Economic growth has strengthened and there is “broad improvement” in the labor market, she said, adding that only a notable change in the outlook for the economy would prompt the central bank to slow the pace of tapering.

“Several” Fed officials said that in “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor of continuing to reduce the pace” of the Fed’s bond purchases at each meeting, according to minutes released today.

The Fed decided at its January meeting to press on with a second cut of $10 billion to its bond buying. Three rounds of stimulus have helped push the S&P 500 up as much as 173 percent from a 12-year low in 2009.

Housing Data

Homebuilders declined today, led by losses of at least 1.9 percent in MDC Holdings Inc. and M/I Homes Inc., after a report showed the pace of U.S. home construction declined more than forecast in January, indicating an unusually harsh winter probably played a role in slowing projects.

“The weak data, that’s being discounted simply because of the harsh weather, which is understandable,” Bruce Bittles, chief investment strategist at RW Baird & Co., said by telephone from Sarasota, Florida. His firm oversees $120 billion. “I think we won’t know anything about the state of the economy until March or maybe even April.”

‘Downside Risks’

The S&P 500 trades at almost 17 times reported operating earnings, near the highest level since 2010, according to data compiled by Bloomberg. The ratio increased about 20 percent in 2013, the biggest jump in four years, while corporate profits rose 5.6 percent. The index rallied 30 percent last year.

The IMF said today the global recovery is still weak and “significant downside risks remain,” citing increasing political tensions from Ukraine to Thailand, China’s slowdown and the Fed’s tapering of its stimulus as reasons for falling stocks and currencies in emerging markets.

Clashes between Ukraine police and anti-government activists killed at least 25 people and left hundreds injured in the bloodiest episode of the country’s three-month standoff. Violence in Bangkok killed five people.

“Capital outflows, higher interest rates, and sharp currency depreciation in emerging economies remain a key concern,” according to the IMF report prepared ahead of the Group of 20 meeting in Sydney over the weekend. “A new risk stems from very low inflation in the euro area, where long-term inflation expectations might drift down, raising deflation risks in the event of a serious adverse shock to activity.”

’Lowered Guidance’

Earnings have beaten analysts’ estimates at 75 percent of the 416 companies in the S&P 500 that have released results so far in the reporting season, according to data compiled by Bloomberg. Sales have topped projections at 64 percent.

Hedge-fund manager David Einhorn cautioned against betting on the extension of a U.S. stock-market rally that he said was fueled by conditions that are difficult to sustain.

“In 2013, the market rewarded many companies for beating earnings after they had lowered guidance,” Einhorn said today on a conference call discussing results at Greenlight Capital Re Ltd., the Cayman Islands-based reinsurer where he is chairman. “This trend is not likely to continue indefinitely.”

Eight of 10 main industries in the S&P 500 fell today, as financial firms lost 1.3 percent to lead declines. JPMorgan Chase & Co. slid 2.1 percent to $57.26, snapping a 10-day rally, and Bank of America Corp. dropped 1.6 percent to $16.20.

Steel Decision

U.S. Steel Corp. lost 7 percent to $24.86 for the steepest drop in the S&P 500. The nation’s largest producer of the metal by volume fell after the Commerce Department left South Korea off a preliminary list of countries whose imports of steel tubing used by oil and gas drillers would be charged anti-dumping duties.

Eli Lilly rallied 5.1 percent to $58.09. The pharmaceutical company said its Ramucirumab drug improved survival in a study of patients with non-small cell lung cancer. The company plans to submit its first application for the drug to regulators this year.

Garmin jumped 9.6 percent to $51.68. The maker of navigation systems said gains in its fitness, marine and aviation segments will help push revenue to between $2.6 billion and $2.7 billion this year. Analysts (GRMN) had predicted sales of $2.59 billion.

Nabors Industries Ltd. surged 13 percent to $21.15. The oil and gas drilling contractor reported fourth-quarter operating revenue above analysts’ estimates.

CF Industries rallied 5.1 percent to $237.62 after the maker of chemicals used in fertilizer said fourth-quarter sales exceeded analyst estimates.

Signet Jewelers rallied 18 percent to $93.65. The operator of the Kay and Jared brands agreed to buy Zale for about $1.4 billion, expanding its leadership as the largest jewelry chain in the U.S. Zale surged 40 percent to $20.92.

To contact the reporter on this story: 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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