U.S. stocks fell a second day, after equity benchmarks rose to record levels last week, as reports of escalating violence in the Middle East overshadowed data that boosted optimism in the world’s biggest economy.
Exxon Mobil Corp. dropped 1.6 percent and Pioneer Natural Resources Co. slumped 4.8 percent as energy shares led declines. Intercontinental Exchange Inc. fell 4 percent after an analyst downgraded the stock. JPMorgan Chase & Co., Boeing Co. and United Technologies Corp. retreated at least 1.2 percent as the Dow Jones Industrial Average fell the most in a month and the VIX (VIX) index of volatility jumped the most since April.
The Standard & Poor’s 500 Index (SPX) lost 0.6 percent to 1,949.98 at 4 p.m. in New York, erasing a morning gain of 0.3 percent. The Dow slid 119.13 points, or 0.7 percent, to 16,818.13. The VIX, as the Chicago Board Options Exchange Volatility Index is known, jumped 10 percent to 12.13
“With the stock market at or near all-time highs and yet with the GDP and earnings growth a little on the sluggish side, that has people a little nervous,” Matt Maley, equity strategist at Boston-based Miller Tabak & Co., said in a phone interview. “There’s a lot of complacency and people are not worried about major downside because the Fed has their back, but they are nervous about a short-term pullback.”
Equities began to erase earlier gains in the afternoon as the Wall Street Journal reported that Syrian warplanes struck targets in western Iraq, killing at least 50 people. Major indexes extended losses as the final hour of trading began.
Earlier U.S. Secretary of State John Kerry was in Iraq seeking to prod the country’s leaders to unite against an al-Qaeda offshoot that has seized control over areas of the country, OPEC’s second-biggest oil producer.
“It’s the situation with any kind of geopolitical scenario over in the Middle East,” Stephen Carl, principal and head equity trader at New York-based Williams Capital Group LP, said in a phone interview. “It’s tenuous, you don’t know which way it’s going to go, and any kind of abrupt action is going to be a trigger. We’ll see what kind of concrete news comes out of it and whether it stabilizes or continues.”
Equities climbed to start the day after a Commerce Department report showed purchases of new homes in the U.S. rose in May by the most in 22 years, indicating the industry is rebounding from a winter-induced lull at the start of the year. A report yesterday showed sales of previously owned homes climbed last month the most since October.
The Conference Board’s index of U.S. consumer confidence increased to 85.2 in June from 82.2 a month earlier, the New York-based private research group said today. The median projection in a Bloomberg survey of 70 economists called for a reading of 83.5 in June.
The S&P 500 rose more than 8 percent since a low on April 11 to its all-time high last week as data showed the economy is recovering from extreme weather that triggered the only decline in first-quarter gross domestic product since 2011. The government’s third revision to the GDP reading, due June 25, is expected to show a contraction of 1.8 percent, according to a Bloomberg survey of economists.
Federal Reserve Bank of Philadelphia President Charles Plosser said today he’s “fairly optimistic” economic growth will exceed 2.4 percent for the remainder of this year and next amid steady growth in jobs. Consumption will probably rise as household balance sheets improve and unemployment declines to 5.8 percent by the end of this year, he said in remarks prepared for a speech to the Economic Club of New York.
“The rebound after the bad winter seems to be progressing, the outlook for unemployment is a bit better, and the inflation rate appears to be firming,” Plosser said. “Current data suggest economic strength is fairly broad-based.”
Fed Chair Janet Yellen last week said accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth. She emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation.
Fed policy makers on June 18 trimmed bond buying by $10 billion for the fifth straight meeting, to $35 billion per month, while reiterating that they plan to keep the main rate close to zero. The stimulus has helped propel the S&P 500 higher by as much as 191 percent from a bear-market low in 2009. for a “considerable time” after ending the purchases.
“It makes sense to take a breather with high valuations,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, Germany. “There may be a bit more nervousness, but markets have been quite stable and volatility remains very low.”
The S&P 500 slipped less than 0.1 percent yesterday, halting the six-day rally that pushed it to a record last week. The index trades at 16.5 times the projected earnings of its members, close to its highest valuation in four years.
The U.S. equities market experienced its smallest swings of the year before today. The S&P 500 moved 0.25 percentage point from its highest and lowest points yesterday. That followed a swing of 0.24 point on June 20, the narrowest movement in more than 20 years besides a 0.20 point reading in December. The VIX, a measure of S&P 500 options prices, closed at 10.98 yesterday, near its lowest level since 2007.
Eight of the 10 main S&P 500 groups retreated today, with energy stocks falling 2 percent as a group to lead declines. Exxon Mobil sank the most in the Dow, while Pioneer Natural had the biggest decline in the S&P 500.
Elizabeth Arden Inc. fell 3.1 percent to $27.41. The maker of Elizabeth Taylor and Britney Spears perfumes announced a restructuring program that will eliminate jobs and shut its Puerto Rico affiliate.
Intercontinental Exchange dropped 4 percent to $190.18 for the biggest drop since May. Wells Fargo Securities cut the rating on the second-largest operator of security exchanges to the equivalent of hold from the equivalent of buy.
An S&P index of homebuilders gained 1.1 percent as all 11 of its companies advanced. D.R. Horton jumped 1.2 percent and Lennar Corp. rose 1.4 percent.
Micron Technology Inc. (MU) climbed 4 percent to $32.50. The largest U.S. maker of memory chips said third-quarter profit rose to $806 million, while sales climbed to $3.98 billion. Both measures exceeded analysts’ projections, with limited supply in the industry bolstering prices. The stock has rallied 49 percent this year.
Vertex Pharmaceuticals Inc. surged 40 percent to $93.53. A combination of two of the company’s drugs significantly improved lung function in clinical trials on patients with the most common form of cystic fibrosis, holding out the promise of a new treatment for the genetic illness.
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