U.S. Stocks Fall as Confidence Drops Before Fed Speech

U.S. stocks fell, following yesterday’s drop in the Standard & Poor’s 500 Index, as investors watched economic reports ahead of Federal Reserve Chairman Ben S. Bernanke’s speech on the economy in three days.

KLA-Tencor Corp., a maker of machinery used in the production of semiconductors, slumped 2.5 percent after Deutsche Bank AG cut its rating. Lexmark International Inc. surged 14 percent after the printer maker said it plans to cut 1,700 jobs and shut a factory in the Philippines as it explores a sale of its inkjet technology. H.J. Heinz Co. advanced 1.7 percent after reporting preliminary profit that topped analysts’ estimates.

The S&P 500 fell 0.1 percent to 1,409.30 at 4 p.m. New York time. The Dow Jones Industrial Average dropped 21.68 points, or 0.2 percent, to 13,102.99. Volume for exchange-listed stocks in the U.S. was 4.6 billion shares, or 26 percent below the three-month average, according to data compiled by Bloomberg.

“It will be interesting to see what Bernanke says about the economy,” said Liz Ann Sonders, the New York-based chief investment strategist at Charles Schwab Corp., which has $1.82 trillion in client assets. “I wouldn’t expect to hear much about easing other than: we’re going to keep the door open. The U.S. may not be shining in an absolute sense but relative to the rest of the world the trajectory is far more positive.”

Data today showed that confidence among U.S. consumers fell in August by the most in 10 months as households grew more pessimistic about the economic outlook. Home prices in 20 U.S. cities climbed in June from a year earlier, the first gain in almost two years, indicating the market that triggered the recession is beginning to rebound.

Jackson Hole

Bernanke probably won’t provide specific plans for further monetary action at the Fed Bank of Kansas City’s annual Jackson Hole symposium this week, according to Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian. The Fed signaled last week it’s ready to take further steps to spur the economy. Many policy makers said additional stimulus probably will be needed soon unless the economy shows signs of a durable pickup, according to minutes released Aug. 22 of the central bank’s most recent meeting, on July 31-Aug. 1.

“The minutes were consequential and we don’t expect Bernanke to take it further than what the minutes said,” El-Erian, also the co-chief investment officer of the world’s largest manager of bond funds, said on Bloomberg Television’s “In the Loop” with Betty Liu. “It’s highly probably that he will outline the options that the Fed has available and the commitment to do more if needed.”

Seven out of 10 groups in the S&P 500 retreated as phone, industrial and raw material shares had the biggest losses. Energy shares rose the most among 10 groups.

Lower Rating

KLA-Tencor dropped 2.5 percent to $51.66. Deutsche Bank cut the company’s recommendation to sell from hold. Spending by foundries, companies that manufacture chips on a contract basis for other electronics makers, may fall in 2013 from a year earlier, according to a note to investors by Deutsche Bank analyst Vishal Shah in New York.

Lexmark rallied 14 percent, the most in the S&P 500, to $21.62. The inkjet manufacturing facilities in Cebu will be closed by the end of 2015, Lexington, Kentucky-based Lexmark said in a statement today. The company will cut 1,100 manufacturing positions and also reduce positions in research and development, supply chain and support functions. The reorganization will generate annual savings of $95 million.

H.J. Heinz added 1.7 percent to $57.41. The company’s full results, which will be released tomorrow, will show “dynamic growth in emerging markets as well as improved productivity, higher margins and a favorable tax rate,” Chief Executive Officer William R. Johnson said in a statement.

Market Share

Nike Inc. rose 2.5 percent to $98.87. The world’s largest maker of sporting goods advanced after a Stifel Financial Corp. analyst said it gained market share during back-to-school shopping.

Molycorp Inc. added 13 percent to $10.75. The owner of the largest rare-earth deposit outside of China climbed after ore separation began at its Mountain Pass mine in California.

Movado Group Inc. jumped 17 percent to $35.36 after raising its profit forecast for this fiscal year as sales of its branded watches gained.

Consumer stocks are worth buying because they lessen the risks associated with lower earnings estimates and any revival in market volatility, according to Gina Martin Adams, a Wells Fargo & Co. strategist. The ratios of two S&P 500 gauges of consumer-related shares to the index have retreated from this year’s highs. Retailers, media companies and others in S&P’s consumer-discretionary category peaked in May. Makers of food, beverages and other consumer staples followed suit in July.

Market ‘Noise’

“U.S. consumers have managed to hold their own,” Martin Adams wrote in a report. “Consumer stocks have followed along the path of the consumer, offering stability amid the noise of the broader markets.”

Both industry groups ought to carry more weight with investors than they do within the S&P 500, according to the New York-based strategist. Each was about 11 percent of the index’s value as of yesterday, according to data compiled by Bloomberg.

Earnings for consumer companies are poised to rise at a relatively fast pace, the report said. She estimated that next year’s profit for the staples category will climb 6.1 percent, the biggest increase among the S&P 500’s 10 broadest industry groups. Consumer-discretionary earnings may rise 4 percent, surpassing a 3.3 percent growth estimate for the 500-stock index, she wrote.

Consumer industries may be a haven from bigger U.S. stock swings, Martin Adams wrote. In the past year, the staples index moved 0.56 percent on average for each 1 percent change in the S&P 500, the report said. The consumer-discretionary gauge matched the S&P 500’s moves, which resulted in a so-called beta of 1. The Chicago Board Options Exchange Volatility Index, or the VIX, advanced 22 percent through yesterday from a five-year low on Aug. 17.

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