Dow Posts First Three-Day Drop This Year on Stimulus Bets
U.S. stocks fell, with the Dow Jones Industrial Average posting its first three-day losing streak this year, as investors weighed prospects for economic growth and the pace of Federal Reserve stimulus measures.
All 10 main industries in the S&P 500 retreated. Utility stocks fell 1.1 percent, extending a six-week decline to 11 percent. Biogen Idec Inc. slipped 7.4 percent as Citigroup Inc. cut its recommendation on the stock. Cooper Tire & Rubber Co. soared 41 percent after agreeing to be acquired by Apollo Tyres Ltd. for about $2.57 billion.
The Standard & Poor’s 500 Index (SPX) fell 0.8 percent to 1,612.52 at 4 p.m. in New York. The gauge erased a 0.7 percent rally earlier today and recorded its biggest three-day decline since April 17. The Dow lost 126.79 points, or 0.8 percent, to 14,995.23. The index has slipped 1.7 percent in the past three days, its longest retreat since Dec. 28.
“Markets are having a difficult time holding onto gains of any kind,” Peter Kenny, chief market strategist at Knight Capital Group Inc. in Jersey City, New Jersey, said in an interview. “Buying is suddenly becoming less automatic given the backdrop of the Fed narrative. It appears as though whenever the market pops its head up and trades in the green, institutions lighten up, hedge risk and provide supply. It appears as though the easy lifting is behind us.”
Stimulus from the Federal Reserve and better-than-forecast earnings have propelled the bull market in U.S. stocks into a fifth year and driven the S&P 500 up 138 percent from a 12-year low in 2009. The gauge has fallen 3.4 percent from its record high on May 21, the day before Fed Chairman Ben S. Bernanke suggested the central bank could curtail its bond purchases, known as quantitative easing, if the economy improved in a “real and sustainable way.”
Investors get their next look at the health of the U.S. economy tomorrow, when reports may show initial jobless claims were unchanged last week and sales at retailers rose in May. The S&P 500 rallied June 7 after jobs growth in May beat forecasts. At the same time, bigger job and wage gains are needed to move the central bank closer to scaling back stimulus. Fed policy makers next meet June 18-19.
Concerns over economic growth and the pace of central-bank bond buying have led to widening swings in U.S. shares. That has prompted options traders to make unprecedented bets on equity volatility, pushing bullish and bearish contracts to records. Options outstanding on the iPath S&P 500 VIX Short-Term Futures ETN, tracking a gauge of VIX futures, climbed to an all-time high of 3.46 million on June 6, based on data compiled by Bloomberg.
“Markets are wrestling with high volatility and changes, which in my opinion, are disconcerting to a lot of investors,” David Kotok, Sarasota, Florida-based chief investment officer at Cumberland Advisors Inc., said in a phone interview. His firm oversees $2.2 billion. “We went from QE, relied upon and predictable, to mixed messages in most of the capital markets of the world,” he said. There will be “more volatility, lots of more, both directions in nearly all markets. Great opportunity if you’re on the right side of it.”
The Chicago Board Options Exchange Volatility Index, a gauge of derivative prices for the S&P 500 known as the VIX, has gained 65 percent from a six-year low in March. The index rose 8.9 percent to 18.59 today, erasing its loss for the year.
Consumer-discretionary and utility stocks dropped at least 1.1 percent, leading losses among 10 S&P 500 groups.
Utilities in the index have fallen 11 percent as a group after reaching a five-year high April 30, as rising bond yields reduce demand for their dividends. Stocks in power providers pay 4.1 percent of their price in dividends for the second highest yield among 10 groups, according to data compiled by Bloomberg. Yields on 10-year Treasury notes have added 56 basis points, or 0.56 percentage point, to 2.23 percent since the end of April.
American Express Co. slid 2.4 percent to $74.72, the biggest retreat in the Dow, as financial stocks dropped 1 percent as a group. Legg Mason Inc. slipped 2.7 percent to $32.44, after the money manager was cut to sell from neutral by Goldman Sachs Group Inc.
Biogen Idec, maker of multiple sclerosis pill Tecfidera, fell 7.4 percent to $206.55. The shares were cut to neutral from buy at Citigroup, after they rallied 52 percent this year through yesterday. The S&P 500 Health Care Index rose 21 percent in the period.
First Solar Inc., the largest U.S. solar manufacturer by shipments, slid 11 percent to $46.66, the biggest decline in the S&P 500. The company said it is offering 8.5 million shares to finance “general corporate purposes.” The offer amounts to almost 10 percent of current stock.
Cooper Tire soared 41 percent to $34.66, the highest in 20 years, after Apollo Tyres, India’s second-biggest tiremaker by market value, agreed to acquire the company. Apollo’s subsidiary will pay $35 a share to stockholders of Findlay, Ohio-based Cooper Tire, 43 percent higher than yesterday’s closing share price of $24.56.
Goodyear Tire & Rubber Co., the largest U.S. tiremaker, added 2 percent to $14.89.
Spectra Energy Corp. climbed 11 percent to a record $33.68. The pipeline operator said it plans to sell some transmission and storage asset to Spectra Energy Partners LP by the end of the year. The completion of the plan will enable the company to boost its dividend by 12 cents a year, up from the current target of 8 cents a share. Spectra Energy Partners advanced 6.2 percent to $39.48.
Hewlett-Packard Co. gained 2.8 percent, the most in the Dow, to $24.91. Chief Executive Officer Meg Whitman told CNBC that the personal-computer maker is ahead of its target in the turnaround as the company is halfway done with planned job cuts. Whitman is eliminating 29,000 jobs through the end of fiscal 2014 to save as much as $3.5 billion a year and shore up profitability as PC demand ebbs.
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