May 22 (Bloomberg) -- U.S. stocks fell, with benchmark indexes retreating from record highs, as concern grew that the Federal Reserve will scale back its stimulus efforts if the labor market continues to improve.
All 10 industries in the Standard & Poor’s 500 Index declined. Utility, commodity and phone stocks sank the most, losing at least 1.2 percent. Target Corp. slid 4 percent after profit fell 29 percent as higher taxes and cooler temperatures hampered sales. Saks Inc. soared 15 percent as the retailer was said to have hired Goldman Sachs Group Inc. to explore options including a sale. Hewlett-Packard Co. jumped 13 percent after the market closed as it forecast earnings that topped estimates.
The S&P 500 fell 0.8 percent to 1,655.35 at 4 p.m. in New York, after rallying as much as 1.1 percent earlier. The Dow Jones Industrial Average lost 80.41 points, or 0.5 percent, to 15,307.17. About 8.3 billion shares changed hands today, 32 percent above the three-month average.
“The key takeaway is whether the Fed does more or does less all depends on the data,” John Canally, investment strategist at Boston-based LPL Financial Corp., which has $373 billion in advisory and brokerage assets, said in a phone interview. “Stocks have been up so much year to date. Largely, people are looking for an excuse to sell.”
U.S. stocks rallied early in the day after Fed Chairman Ben S. Bernanke said in prepared remarks to Congress that a premature withdrawal of quantitative easing would put the economic recovery at risk. Equities pared gains after he said the central bank could “step down” the pace of asset purchases in the next few meetings if the labor market continues to improve and “we have confidence that that is going to be sustained.”
The chairman has said he would continue stimulus efforts until the jobless rate falls to 6.5 percent or inflation rises above 2.5 percent.
Many Fed officials said more progress in the labor market is needed before deciding to slow the pace of asset purchases, according to minutes of their last meeting. A number said they were willing to taper bond buying as early as the next meeting on June 18-19 if economic reports show “evidence of sufficiently strong and sustained growth,” according to the record of the April 30-May 1 gathering released today in Washington.
“Most observed that the outlook for the labor market had shown progress” since the-bond buying program began in September, according to the minutes. “But many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate.”
Fed Bank of New York President William C. Dudley said in an interview with Michael McKee on Bloomberg Television that policy makers will know in three to four months whether the economy is healthy enough to allow the central bank to begin reducing its stimulus program.
“If they were to taper, it might be a good sign that the economy is capable of standing on its own feet,” Terry L. Morris, a senior equity manager who helps oversee about $2.6 billion at Wyomissing, Pennsylvania-based National Penn Investors Trust Co., said by phone. “But we’re programmed to believe that the market is going to go down when this happens. It’s probably what’s going to happen initially, but the market will likely start to work its way higher.”
The S&P 500 has surged 145 percent from its 12-year low in 2009, driven by better-than-estimated corporate earnings and three rounds of bond purchases from the Fed. The index trades at 16.2 times reported operating profit, 16 percent below the average since 1998, data compiled by Bloomberg show.
The Chicago Board Options Exchange Volatility Index, or VIX, jumped 3.4 percent to 13.82. The equity volatility gauge, which moves in the opposite direction to the S&P 500 about 80 percent of the time, has slipped 23 percent this year.
A slide in Treasury prices after Bernanke’s remarks briefly sent the 10-year note’s yield above the S&P 500’s 2.04 percent dividend yield for the first time in more than a year, according to data compiled by Bloomberg.
“The 2 percent is the magic thing on the 10-year yield,” Frank Ingarra, head trader at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview. His firm oversees $1.6 billion. “It’s the threshold so going toward that, people are getting a little worried,” he said.
Utility and phone stocks, which offer the highest dividend yield among 10 industry groups, dropped 1.6 percent and 1.2 percent, respectively. Duke Energy Corp., the largest U.S. utility owner, slipped 1.7 percent to $70.19. AT&T Inc., the country’s biggest phone company, lost 0.9 percent to $36.62.
Target, the second-largest U.S. discount retailer, dropped 4 percent to $68.40. U.S. retailers have been struggling as an increase in Social Security taxes takes a larger bite out of shoppers’ paychecks while colder-than-normal temperatures hurt sales of spring merchandise.
Pfizer Inc. rose 1.8 percent to $29.30 for the largest advance in the Dow. The world’s largest drugmaker will offer its 80.2 percent stake in Zoetis Inc., the animal health company it spun off almost four months ago, in a stock exchange. Zoetis gained 1.5 percent to $33.55.
Bristol-Myers Squibb Co. jumped 5.3 percent to $46.40 after Citigroup Inc. boosted the drugmaker to buy from neutral.
Saks jumped 13 percent to $15.50. The company has hired Goldman Sachs to explore its strategic options, according to two people with knowledge of the matter. KKR & Co. is weighing whether to make an investment in Saks and may push the luxury retailer to pursue a combination with rival Neiman Marcus Group, said people with knowledge of the matter.
Hewlett-Packard surged 13 percent to $24.03 at 6:03 p.m. New York time. After the close of regular trading, the largest personal-computer maker forecast fiscal third-quarter profit that topped analysts’ estimates and raised its quarterly dividend as it cut costs to counter slumping demand for desktops and laptops.
Toll Brothers Inc. climbed 2.9 percent to $37.07 in regular trading after beating analysts’ earnings estimates. Demand for new homes has begun to recover as buyers take advantage of low mortgage rates and the supply of existing homes remains tight.
Sales of previously owned U.S. homes rose in April to the highest level in more than three years as housing continued to gain momentum, National Association of Realtors reported today.
Lowe’s Cos. added 1.2 percent to $42.97 after Chief Executive Officer Robert Niblock said the strengthening housing market is helping sales recover from a cold spring that sapped demand for outdoor merchandise. The second-largest U.S. home-improvement retailer today reported first-quarter profit that trailed analysts’ estimates while maintaining its forecast for earnings this year.
Home Depot Inc. rose 1.3 percent to $79.69. The retailer yesterday posted profit and sales that topped estimates.
NetApp Inc. gained 1.8 percent to $37.28 after the data-storage company said it will cut jobs and return cash through stock buybacks and dividends.
Zale Corp. surged 22 percent to $6.60. The operator of the Zales and Piercing Pagoda jewelry chains reported third-quarter revenue of $442.7 million, exceeding the $440 million in sales analysts estimated on average.
To contact the editor responsible for this story: Lynn Thomasson at email@example.com