U.S. Stocks Fall as Fed Sees Bond Buying Ending in 2013

U.S. stocks fell, following the biggest rally in a year for the Standard & Poor’s 500 Index, as Federal Reserve policy makers said they will probably end their $85 billion monthly bond-purchase program sometime in 2013.

Family Dollar Stores Inc. tumbled 13 percent after forecasting second-quarter earnings that missed estimates. UnitedHealth Group Inc. sank 4.7 percent after the biggest U.S. health insurer was cut to hold from buy at Deutsche Bank AG. Ross Stores Inc. and TJX Cos. jumped at least 3.3 percent as consumer-discretionary companies rallied amid same-store sales that topped estimates.

The Standard & Poor’s 500 Index fell 0.2 percent to 1,459.37 in New York. The benchmark index yesterday reached its highest level since September after lawmakers passed a budget bill, avoiding the so-called fiscal cliff. The Dow Jones Industrial Average lost 21.19 points, or 0.2 percent, to 13,391.36 today. About 6.7 billion shares traded hands on U.S. exchanges today, or 10 percent above the three-month average.

“Concern that they’re taking the punch bowl away could certainly cause some jitters in the market,” James Gaul, a portfolio manager at Boston Advisors LLC which oversees about $2.3 billion in assets, said in a telephone interview. “The sell-off sits with what we’ve been thinking, which is that this has been a Fed-supported rally. The liquidity the Fed has been providing to generate financial asset inflation has been driving the market.”

Four years after cutting the main interest rate to near zero, policy makers are expanding their third round of so-called quantitative easing to boost economic growth and cut the jobless rate, now at 7.7 percent. Minutes from the latest Federal Open Market Committee meeting show policy makers are likely to end their $85 billion monthly bond purchases sometime in 2013.

Divided Participants

The minutes, released today in Washington, show a divide among FOMC participants on how long the purchases should last. Participants who provided estimates were “approximately evenly divided” between those who said it would be appropriate to end the purchases around mid-2013 and those who said they should continue beyond that date.

The S&P 500 surged 2.5 percent yesterday, the most since December 2011, as lawmakers passed a bill averting spending cuts and tax increases scheduled to come into effect this year. The index today climbed within one point of its highest closing level in five years before retreating.

After this week’s deal to avoid the so-called fiscal cliff, investors are turning their attention to impending confrontations between congressional Republicans and the White House over spending.

Spending Cuts

Lawmakers may need to approve an increase in the $16.4 trillion debt ceiling as early as mid-February, with Republicans planning to use the vote to force President Barack Obama to accept cuts in entitlement programs such as Medicare. Another showdown might emerge in early March, when Congress must confront the $110 billion in automatic spending cuts that were put off in the Jan. 1 tax deal.

The budget agreement passed by Congress on Jan. 1 won’t lower the country’s deficit enough to avoid a sovereign-rating downgrade, Moody’s Investors Service said yesterday. Moody’s, which has assigned its top Aaa ranking for the U.S., has a negative outlook on the world’s biggest economy, as does Fitch Ratings.

Equities gained earlier today after a private report showed companies added 215,000 workers in December. The increase was higher than projected, data from the Roseland, New Jersey-based ADP Research Institute showed today. The median forecast of 36 economists surveyed by Bloomberg called for an advance of 140,000.

Jobs Data

More Americans than forecast filed claims for unemployment insurance payments last week as the closing of some state agencies during the holidays prompted the government to estimate some figures.

The Labor Department will tomorrow release its payrolls report for December. The median forecast of economists in a Bloomberg survey projects a gain of 150,000 workers, following an increase of 146,000 in November. The unemployment rate held at 7.7 percent, the lowest since December 2008, according to economists’ estimates.

“This is a funny day because it’s in between the payroll number tomorrow and yesterday’s announcement on the fiscal cliff,” Christopher Orndorff, who helps oversee $450 billion as senior portfolio manager at Western Asset Management Co. in Pasadena, California, said by phone. “People are still trying to digest the news from yesterday and the implications of what may come with the debt limit negotiations that are going to be ongoing for the next two months, and looking forward to tomorrow’s employment report.”

Family Dollar

Family Dollar plunged 13 percent, the biggest decline in the S&P 500, to $55.74. The discount-store chain forecast earnings in the second quarter will be no more than $1.28 a share, falling short of the $1.39 profit projected by analysts on average.

UnitedHealth sank 4.7 percent for the biggest drop in the Dow to $51.99. Deutsche Bank analyst Scott Fidel lowered his rating on the stock, citing an annual employer health benefits survey showing price hikes are lagging increases in medical costs this year.

Biogen Idec Inc. declined 1.4 percent to $147.86. The third-biggest biotechnology company said its experimental drug for amyotrophic lateral sclerosis failed to help patients in a clinical trial. The drug, dexpramipexole, was in the third and final stages of clinical trials generally required for approval.

General Growth

General Growth Properties Inc. slid 2.9 percent to $19.46 after Pershing Square Capital Management LP, its second-largest shareholder, gave up its demand for the sale of the company. GGP’s biggest investor, Brookfield Asset Management Inc., will buy warrants for 18.4 million shares of the second-biggest U.S. mall owner from Pershing, according to a statement today.

Ross and TJX reported December same-store sales that topped analysts’ estimates as retailers kept inventories lean in a tepid holiday season and attracted shoppers with last-minute discounts. Same-store sales for the more than 20 companies tracked by Swampscott, Massachusetts-based Retail Metrics rose 4.8 percent, excluding drugstores, beating the estimate for a 3.4 percent gain, the firm said in a report today.

Ross rallied 8 percent to $58.78, while TJX advanced 3.3 percent to $44.58. Consumer discretionary stocks increased 0.2 percent, the most among 10 groups in the S&P 500.

Limited Brands

Limited Brands Inc. sank 5.7 percent to $44.71. The retailer that owns the Victoria’s Secret and Bath and Body Works brands said comparable store sales increased 3 percent in December, trailing the average analyst estimate of 4.7 percent.

Hormel Foods Corp. jumped 3.7 percent to $33.20. The maker of Spam lunchmeat agreed to buy the Skippy peanut-butter business from Unilever for about $700 million, expanding its presence beyond meats and further into China.

Auto companies gained the most out of 24 groups in the S&P 500. Ford Motor Co. added 2 percent to $13.46, while General Motors Co. gained 2.4 percent to $29.82. U.S. deliveries of cars and light trucks climbed 10 percent for Chrysler Group LLC, 4.9 percent for GM and 1.6 percent for Ford. The automakers topped analysts’ average projections for gains of 7.6 percent by Chrysler, 2.1 percent by GM and 1.2 percent by Ford.

Before it's here, it's on the Bloomberg Terminal.