U.S. Stocks Erase Rally as Investors Analyze Fed Comments

U.S. stocks erased an earlier rally after the Federal Reserve refrained from indicating when it will reduce the pace of stimulus and data showed the economy grew more than projected in the second quarter.

Mosaic Co. fell 6.2 percent, extending yesterday’s losses after OAO Uralkali decided to end production restrictions on potash that underpinned global prices. Visa Inc. lost 7.5 percent after a court ruling on debit-card fees. Facebook Inc. briefly rose above its $38 initial public offering price for the first time, before retreating. Comcast Corp. climbed 5.6 percent after posting earnings that topped analyst estimates.

The S&P 500 lost less than 1 point to 1,685.73 at 4 p.m. in New York. The benchmark gauge gained 5 percent for July, the biggest monthly advance since January. The Dow Jones Industrial Average dropped 21.05 points, or 0.1 percent, to 15,499.54. About 7 billion shares changed hands on U.S. exchanges, 10 percent above the three-month average.

“The statement should come as no surprise, the Fed will remain largely data dependent as to asset purchases, while noting persistently low inflation may be a risk to the economy,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in an interview. His firm oversees $290 billion. “The mention of low inflation being a risk may push out expectations for tapering, but by and large, this statement reads as expected.”

The S&P 500 reversed course after pulling within 2 points of 1,700, sliding more than 0.7 percent in the final hour. It was the third time in seven days the index surpassed 1,698 only to retreat by the close of trading.

Fed’s Pledge

The Fed repeated the pledge it has used since September that it will continue the purchases until the U.S. labor market outlook has improved substantially. Policy makers left unchanged their commitment to hold the target interest rate near zero as long as the jobless rate remains above 6.5 percent and the outlook for inflation over one to two years doesn’t exceed 2.5 percent.

The central bank said persistently low inflation could hamper the economic expansion.

“The committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term,” the Federal Open Market Committee said at the conclusion of its two-day meeting in Washington.

Whipsawed Stocks

Speculation about the Fed’s $85 billion in monthly bond purchases has whipsawed stocks since May, when Chairman Ben S. Bernanke first indicated policy makers could begin reducing the stimulus this year if the job market continues to improve.

The benchmark index tumbled 5.8 percent from a record high on May 21 through June 24. It then rebounded as much as 7.8 percent, reaching its latest closing record of 1,695.53 on July 22 as policy makers stressed that any tapering of stimulus depends on improving economic data.

Three rounds of bond purchases by the U.S. central bank, coupled with improving earnings and economic growth, has helped propel the S&P 500 up about 150 percent from its bear-market low in 2009. The central bank will begin to reduce its bond-purchase program in September, according to economists surveyed by Bloomberg.

A Commerce Department report earlier today showed that gross domestic product, the value of all goods and services produced, rose at a 1.7 percent annualized rate, after a 1.1 percent gain the prior quarter. The median forecast of 85 economists surveyed by Bloomberg called for a 1 percent advance for last quarter. Consumer spending, the biggest part of the economy, climbed 1.8 percent after increasing 2.3 percent.

Jobs Data

Companies boosted employment by 200,000 workers in July, figures from the Roseland, New Jersey-based ADP Research Institute showed today. The median forecast of 40 economists surveyed by Bloomberg called for a 180,000 gain. The data come ahead of the government’s monthly labor report on Aug. 2.

“Investors are left to their own devices to interpret what will happen to monetary policy,” Tom Mangan, who helps oversee about $4.3 billion as a money manager at James Investment Research Inc. in Xenia, Ohio, said in a phone interview. “The best thing we have to work with is the economic data as it unfolds with the backdrop that the Fed wants inflation higher and unemployment lower.”

Investors are also watching corporate earnings. Of the 341 companies in the gauge that have posted quarterly results so far, 73 percent have exceeded analysts’ estimates for profit and 57 percent have topped sales projections, data compiled by Bloomberg show.

Volatility Index

The Chicago Board Options Exchange Volatility Index, or VIX, rose 0.5 percent to 13.45. The equity volatility gauge reached its highest level this year in June and has since fallen 34 percent.

Phone companies and utilities had the biggest declines among 10 groups in the S&P 500, sliding more than 0.7 percent. Consumer-discretionary and energy shares advanced the most, gaining at least 0.3 percent.

Mosaic fell 6.2 percent to $41.09 after tumbling 18 percent yesterday, as the $20 billion global market for the crop nutrient potash is set to become freely traded for the first time in eight years. Uralkali, the biggest supplier, decided to end production restrictions and suspend a venture with a Belarusian miner that controlled exports from the former Soviet Union. Agrium Inc. lost 1.7 percent to $85.

Visa, MasterCard

Visa fell 7.5 percent to $177.01 for the second-largest drop in the S&P 500. The world’s biggest payment network declined after a judge ruled that the Fed had erred by inflating the debit-card fees that banks can charge retailers. Swipe, or interchange fees, are set by Visa and MasterCard Inc., which collect the money and remit it to card-issuing member banks.

MasterCard, the second-biggest U.S. network, gained 1.5 percent to $610.61. The shares jumped as much as 4.1 percent earlier in the day after profit beat analysts’ estimates as spending on credit and debit cards rose.

Genworth Financial Inc. lost 2.8 percent to $12.99. The best-performing insurer in the S&P 500 this year reported operating profit, which excludes some investment results, of 27 cents a share, missing the 29-cent average estimate of 10 analysts surveyed by Bloomberg.

J.C. Penney Co. dropped 10 percent to $14.60, for the biggest decline in the S&P 500. The New York Post reported commercial lender CIT stopped supporting deliveries from smaller manufacturers to Penney stores, citing a person familiar with the situation.

Facebook lost 2.2 percent to $36.80 after touching $38.31 earlier, briefly erasing losses since its May 2012 IPO. The shares are up 38 percent this year. Facebook had tumbled to a low of $17.55 in September.

Comcast Climbs

Comcast climbed 5.6 percent to $45.08. The largest U.S. cable provider reported profit that topped estimates for the seventh consecutive quarter and posted its best second-quarter video and high-speed data subscriber numbers in five years.

Symantec Corp. jumped 9.6 percent to $26.68 for the largest increase in the S&P 500. The biggest maker of security software reported fiscal first-quarter profit that exceeded projections as it reduced costs to cope with a record slump in personal-computer sales.

Questcor Pharmaceuticals Inc. rallied 28 percent to $66.66 as the maker of treatments for nervous system disorders reported increased second-quarter results.

Garmin Ltd. advanced 7.6 percent to $40.08. The maker of navigation devices reported earnings that beat analysts’ estimates as it gained global market share.

Ackman’s Stakes

Air Products & Chemicals Inc. climbed 2.9 percent to $108.64 after William Ackman’s Pershing Square Capital Management LP said it has amassed a 9.8 percent stake in the industrial-gas producer. The stake sets the stage for a clash between Ackman and Air Products, which instituted a shareholder-rights plan last week to prevent any one investor from gaining too much control.

Herbalife Ltd. climbed 9.1 percent to $65.50 after CNBC reported billionaire investor George Soros has taken a large stake in the nutrition company. The investment is one of Soros’s top three positions, CNBC reported, citing people it didn’t name. The network later said Soros may not hold the position personally.

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