Most U.S. stocks fell after the Dow Jones Industrial Average rose above 16,000 for the first time, spurring concern that equities have risen too far, too fast.
Consumer companies and commodity stocks led the retreat. Microsoft Corp. slid 1.7 percent after Bank of America Corp. cut its rating to underperform from neutral. Tyson Foods Inc., the largest U.S. meat processor, advanced 2.3 percent after reporting revenue above analysts’ estimates on a gain in prices and sales volumes for beef and chicken.
The Standard & Poor’s 500 Index slipped 0.4 percent to 1,791.53 at 4 p.m. in New York. Earlier, it topped 1,800. About three stocks fell for each that rose in the gauge. The Dow average gained 14.32 points, or 0.1 percent, to 15,976.02. About 6 billion shares changed hands on U.S. exchanges, in line with the three-month average.
“We’ve moved pretty far pretty fast,” Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees about $150 billion. “Obviously there’s a potential for a little bit of a pullback.”
While four years of earnings growth and the Federal Reserve’s near-zero interest rate have led the S&P 500 on a 165 percent rally since March 2009, they have also driven valuations to a three-year high. Billionaire investor Carl Icahn, speaking at the Reuters Global Investment Outlook Summit, said he is “very cautious” on equities.
The S&P 500 trades at 17 times reported operating profit, a 20 percent increase from the beginning of 2013, according to data compiled by Bloomberg. Last week, the benchmark’s valuation reached the highest level since May 2010.
“As we keep going and making new highs, we get into new territory and the air keeps getting thinner and thinner up here,” Tim Hartzell, who helps manage about $425 million as chief investment officer at Sequent Asset Management, said via phone from Houston. “Everybody is watching Yellen and feel comfortable that she’ll continue QE, maybe even put more into the system.”
U.S. stocks have risen for the past six weeks, reaching all-time highs as Janet Yellen signaled she will continue stimulus efforts as the central bank’s chairman. New York Federal Reserve Bank President William C. Dudley today said he’s “getting more hopeful” the U.S. economy is gaining strength as the drag from fiscal policy wanes. The central bank’s monetary policy is likely to be accommodative for a long time, he said.
The policy-setting Federal Open Market Committee is buying $85 billion of bonds every month and won’t taper its purchases until its March 18-19 meeting, according to the median estimate of 32 economists surveyed by Bloomberg News Nov. 8.
China’s leaders vowed to allow more private investment in state-controlled industries and expand farmers’ land rights as part of the ruling Communist Party’s biggest package of economic reforms since the 1990s. Chinese stocks rose, with the benchmark index for mainland companies in Hong Kong surging the most since December 2011.
“To the extent that these reforms might lead to some higher estimates of growth in the coming years, that would be welcomed by investors,” John Carey, a portfolio manager at Pioneer Investment Management, which oversees $20 billion.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, rose 7.5 percent to 13.10. It has fallen 27 percent this year.
Eight out of 10 main industries in the S&P 500 fell, with consumer discretionary companies retreating 0.7 percent to pace declines. Phone stocks rallied 0.6 percent as a group for the biggest gain.
Consol Energy Inc. fell 4 percent to $34.56. The coal producer was cut to neutral from buy at Citigroup Inc. by analyst Brian Yu, who said in a note that the outlook for metallurgical coal looks worse than base metals. Peabody Energy Corp., the largest U.S. coal producer, lost 3.7 percent to $19.36.
Microsoft declined 1.7 percent to $37.20. Bank of America analyst Kash Rangan cut the shares to underperform from neutral, citing the risk that the board will select a chief executive officer that disappoints investors.
Tesla Motors Inc. fell 10 percent to $121.58. Safety officials in California are investigating an industrial accident at the company’s sole Model S plant that injured three workers. The electric-car maker led by Elon Musk has fallen 25 percent since Nov. 1.
Nvidia Corp. dropped 2.4 percent to $15.78. The shares were cut to underweight, or sell, from equalweight, or hold, at Morgan Stanley.
Boeing added 1.7 percent to $138.36. The company took an early lead over rival Airbus SAS in the biennial Dubai expo, signing up Etihad Airways PJSC for its new 777X wide-body planes as well as for more 787 Dreamliners.
Tyson climbed 2.3 percent to $29.42. The company said fiscal fourth-quarter sales rose 7 percent to $8.89 billion, beating the $8.87 billion average of 12 analysts’ estimates compiled by Bloomberg.
Cheap is converging with expensive in the American equity market, narrowing options for investors looking for bargains after the broadest rally on record lifted almost 90 percent of the S&P 500 this year. A measure of the dispersion of price-earnings ratios in the S&P 500 compiled by Goldman Sachs Group Inc. narrowed to 41 percent in June, the lowest on record, and held around that level since.
Investors this week will scrutinize minutes of the Federal Open Market Committee from its Oct. 29-20 meeting and public remarks by Fed officials. The minutes are set to be released on Nov. 20. Fed Chairman Ben Bernanke is due to speak tomorrow, while Fed Bank of St. Louis President James Bullard will deliver a speech on Nov. 20.
“This week is crucial, there is a lot of Fed speak,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion, said by telephone. “Investors want to get a little bit more color and atmospherics from the minutes.”