U.S. Stocks Fall as Data Disappoints Amid Stimulus BetsNikolaj Gammeltoft
U.S. stocks fell, ending four days of records for the Standard & Poor’s 500 Index, amid disappointing economic data and after a Federal Reserve official said the central bank may slow the pace of stimulus as early as this summer.
Wal-Mart Stores Inc. lost 1.7 percent after the world’s largest retailer forecast second-quarter profit that was less than analysts estimated as the slow U.S. economy and higher taxes put pressure on consumers. PulteGroup Inc. and D.R. Horton Inc. fell at least 2.3 percent as housing starts slumped in April. Cisco Systems Inc. surged 13 percent after reporting fiscal third-quarter profit that topped estimates.
The S&P 500 fell 0.5 percent to 1,650.47 at 4 p.m. in New York. The Dow Jones Industrial Average dropped 42.47 points, or 0.3 percent, to 15,233.22. More than 6.4 billion shares traded hands on U.S. exchanges today, or 2 percent above the three-month average.
“The U.S. economy is still struggling with lackluster growth and the recovery is far from self-sustaining, so equity markets are looking for guidance from central banks for their liquidity high,” Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $130 billion, said by phone.
The U.S. bull market has entered its fifth year. The S&P 500 has surged 144 percent from a 12-year low in 2009, driven by better-than-estimated corporate earnings and three rounds of bond purchases from the Federal Reserve.
Equities extended losses this afternoon as Fed Bank of San Francisco President John Williams said the central bank may begin slowing the pace of its $85 billion in monthly bond-buying amid signs the economy is gradually gaining strength.
“It’s clear that the labor market has improved since September” when the Fed began its latest round of asset purchases, Williams said today in a speech in Portland, Oregon. “We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer” and end the program late this year.
Williams was one of the first Fed officials to advocate that the Fed buy bonds without setting a limit on the duration or total for such purchases. The central bank has pumped up its balance sheet to $3.32 trillion through so-called quantitative easing.
Fed Chairman Ben Bernanke has said he would continue unprecedented stimulus until the jobless rate falls to 6.5 percent or inflation rises above 2.5 percent.
Reports today suggested a slowdown in U.S. economic growth. Jobless claims jumped by 32,000 to 360,000 in the week ended May 11, the most since the end of March, Labor Department figures showed. Housing starts slumped 16.5 percent in April, the most since February 2011, the Commerce Department reported. Manufacturing in the Philadelphia region unexpectedly contracted in May for the first time in three months as new orders retreated and factories cut back on employment and hours.
Another report showed the cost of living in the U.S. fell in April for a second month, the first back-to-back declines in inflation since late 2008.
“We think it’s unlikely the Fed is going to tighten monetary policy before the end of this year at the earliest, but that doesn’t mean stocks can’t have a sloppy day because some people think it’s going to happen imminently,” Philip Orlando, chief equity strategist at Federated Investors, which has about $380 billion in assets under management, said by telephone. “There are large swaths of market participants who believe the only reason for the stock market to be up 145 percent over the past four years is because of central bank intervention.”
The market’s rally has pushed 193 stocks in the Standard & Poor’s 500 Index, or 39 percent of the index, to their highest levels in at least 52 weeks, the most in Bloomberg data going back to 1993. The cumulative advance-decline line for stocks listed on the New York Stock Exchange, representing the number of daily gains minus declines, reached a record 63,856 yesterday.
Gains accelerate when corporate profits and the economy surprise a market dominated by skepticism, according to Laszlo Birinyi, president of Westport, Connecticut-based Birinyi Associates Inc. and among the first to advise buying U.S. stocks before the bull market began in 2009. He reiterated that the S&P 500 may climb 15 percent to 1,900 should it conform to bull markets that began in 1982 and 1990.
“Everything is going up, it’s not just tech or industrials or dividends,” Birinyi said today in an interview with Francine Lacqua and Guy Johnson on Bloomberg Television in London. “It’s not just central banks. Earnings are good, the psychology is people are fighting the tape,” he said. “Basically the psychology is, ‘I missed it.’”
The Chicago Board Options Exchange Volatility Index, or VIX, rose 2 percent to 13.07. The equity volatility gauge, which moves in the opposite direction to the S&P 500 about 80 percent of the time, has slipped 27 percent this year.
Nine out of 10 groups in the S&P 500 retreated today, with health-care and consumer-discretionary shares dropping at least 1 percent.
Wal-Mart fell 1.7 percent to $78.50. Chief Executive Officer Mike Duke has cut prices on groceries and other necessities as the chain’s lower-income shoppers deal with elevated unemployment and increased Social Security taxes. First-quarter sales at U.S. Wal-Mart stores open at least 12 months fell 1.4 percent, the first drop after six straight gains. Analysts estimated a 0.1 percent decline.
The retailer forecast second-quarter profit will be $1.22 to $1.27 a share. Analysts had projected $1.29, the average of 24 estimates compiled by Bloomberg.
An index that tracks homebuilder stocks slumped 1.9 percent as all 11 members retreated. The gauge has gained 21 percent this year. PulteGroup, the largest U.S. homebuilder by revenue, dropped 2.6 percent to $23.35. D.R. Horton. lost 2.3 percent to $26.80.
Berkshire Hathaway Inc. Class B shares slid 1.1 percent to $111.54 after S&P lowered the company’s credit rating. S&P cut Berkshire to AA from AA+, saying the downgrade “better reflects our view of BRK’s dependence on its core insurance operations for most of its dividend income,” referring to Warren Buffett’s company by its ticker symbol.
Advanced Micro Devices Inc., which makes semiconductors, slid 13 percent to $3.83. The stock has surged 60 percent since April 15, sparked by Sony Corp.’s decision to use AMD chips for the next version of its PlayStation console.
Technology shares rallied 0.7 percent as a group, with Cisco Systems surging 13 percent to $23.89. Cisco is benefiting as companies step up investments in data-traffic networks to accommodate users who are increasingly relying on smartphones and tablets to watch video and surf the Web.
Microsoft Corp. gained 0.7 percent to $34.08, the highest in five years. The run-up made co-founder Bill Gates the world’s richest person today, the first time he has held the title since 2007. His fortune was valued at $72.7 billion at 4 p.m. in New York, according to the Bloomberg Billionaires Index.
Tesla Motors Inc. gained 8.7 percent to $92.25. The electric-car maker run by Elon Musk said in a U.S. regulatory filing that it will use the proceeds from selling 2.7 million shares, valued at $229 million at yesterday’s closing price, and $450 million in convertible senior notes due in 2018, to pay off a federal loan and fund other operations.
Kohl’s Corp. soared 4.7 percent to $52.03, the highest since November. The third-largest U.S. department-store chain reported first-quarter profit of 66 cents a share, while analysts surveyed by Bloomberg had estimated 57 cents on average.