U.S. Stocks Fall as Investors Pull Money, Weigh Stimulus

U.S. stocks fell, giving the Standard & Poor’s 500 Index its biggest weekly loss since June, as investors pulled money from exchange-traded funds and weighed growing signs the Federal Reserve will cut stimulus this year.

Gap Inc. dropped 3.1 percent after saying July sales at stores open at least a year rose less than analysts estimated. J.C. Penney Co. fell 5.8 percent as its chairman sparred with the largest shareholder, Bill Ackman’s Pershing Square Capital Management LP, over who should lead the company. Cliffs Natural Resources Inc. jumped 11 percent as metals rallied after Chinese industrial output expanded faster than estimated.

The S&P 500 fell 0.4 percent to 1,691.42 at 4 p.m. in New York. The Dow Jones Industrial Average dropped 72.81 points, or 0.5 percent, to 15,425.51. The gauge lost 1.5 percent in the past five days, halting a string of six weekly advances. About 5.3 billion shares changed hands on U.S. exchanges, 16 percent below the three-month average.

“It’s been a combination of tapering and just trying to digest the new highs,” Chris Bouffard, chief investment officer of the Mutual Fund Store in Overland Park, Kansas, which oversees $8 billion, said in a phone interview. “It’s been a slow news week. It’s just a matter of the normal digestion process and people trying to get comfortable with how quickly and how far we’ve come.”

The S&P 500 has rallied 19 percent in 2013 and closed at a record 1,709.67 on Aug. 2. The gauge topped 1,700 for the first time on Aug. 1, and surpassed it twice yesterday before paring gains to close below that level. Today’s retreat left the index down 1.1 percent in the past five days, the biggest weekly slide since June 21. The Dow’s weekly decline snaps its longest winning streak since August 2012.

Fed Tapering

Investors pulled almost $1.20 billion from U.S. equity exchange-traded funds over the last four days, according to data compiled by Bloomberg from about 1,500 funds. About $32 billion of deposits went to the funds in July, the most since September 2008, the data show.

Forty stocks in the S&P 500 closed at their highest levels in 52 weeks or longer yesterday, according to data compiled by Bloomberg, compared with 193 on May 15. Less than 79 percent of the 500 companies traded above their 50-day moving averages, down from 93 percent on May 17.

Speculation the Fed will pare bond purchases in September as the economy strengthens increased this week. Charles Evans, Sandra Pianalto and Richard Fisher, regional Fed presidents in Chicago, Cleveland and Dallas, said this week the central bank may be closer to tapering as the labor market recovers. Fed stimulus has helped propel the S&P 500 up more than 150 percent from its bear-market low in 2009.

Economic Data

Data yesterday showed jobless claims fell in July to the lowest monthly rate since before the recession. A report today indicated inventories at U.S. wholesalers unexpectedly declined in June for the third month, the longest string in almost four years, as demand grew.

A separate report showed Chinese factory production grew faster than estimated in July, which may bolster confidence that the nation will avoid a deeper economic slowdown after larger-than-forecast gains in exports and imports as well as improvement in gauges of manufacturing and service industries.

The S&P 500 trades at 15.3 times projected earnings, up from a multiple of 13.1 at the beginning of this year and holding close to a three-year high reached last week. The five-year average for the index is 13.9 times, data compiled by Bloomberg showed.

‘Fairly Valued’

“The market is at least fairly valued,” said Ivo Weinoehrl, who helps oversee 946 billion euros ($1.27 trillion) as a fund manager at Deutsche Asset & Wealth Management in Frankfurt. “You’ve seen a huge multiple expansion in the S&P over the past two years. I don’t see much upside left from a purely fundamental point of view.”

Better-than-estimated corporate earnings have helped equities rally this year. Of the 447 companies in the S&P 500 to have reported quarterly results this period, 72 percent have exceeded analysts’ profit estimates and 56 percent have beaten sales projections, data compiled by Bloomberg show.

The Chicago Board Options Exchange Volatility Index, or VIX, advanced 5.3 percent to 13.41, extending its weekly rise to 12 percent. The equity volatility gauge reached its 2013 peak in June and has since dropped 35 percent.

Equity investors are piling into securities that hedge losses as a way to protect gains after the S&P 500 surged this year. While volatility has evaporated in the past month amid economic data showing stronger U.S. growth, shares outstanding of the iPath S&P 500 VIX Short-Term Futures ETN, a security designed to rise when stock fluctuations increase, have tripled this year.

Phone Stocks

Nine out of 10 main industries in the S&P 500 fell. Phone stocks retreated for a fifth straight day, losing 1 percent to extend a weekly loss to 2.5 percent. AT&T Inc. slid 1.4 percent to $34.80.

Gap Inc. dropped 3.1 percent to $44.10. The clothing retailer said July same-store sales rose 1 percent, less than the 1.6 percent estimated by analysts, on declines at its Old Navy and Banana Republic chains.

J.C. Penney declined 5.8 percent to $12.87, the eighth retreat in the past nine sessions. The feud between Ackman and board members began yesterday when the investor publicly released a letter calling for a speedier process to replace Chief Executive Officer Mike Ullman. Chairman Tom Engibous said the CEO “has the overwhelming support” of the board.

Apple Shipments

Apple Inc. fell for a fourth day, losing 1.4 percent to $454.45. The iPhone maker’s share of China’s smartphone market was cut by almost half in the second quarter as consumers opted for lower-priced handsets from domestic suppliers.

Apple shipments in China fell to 5 percent of the total in the second quarter from 9 percent a year earlier, Nicole Peng, the China research director for Canalys, said in phone interview today.

Juniper Networks Inc. retreated 5.6 percent, the most in more than three months, to $20.92. The No. 2 maker of networking equipment disclosed that it’s being investigated for possible violations of the U.S. Foreign Corrupt Practices Act.

Producers of raw materials rose 0.6 percent as a group, the only industry to advance out of 10 in the S&P 500. All six of the main industrial metals on the London Metal Exchange rose, following the data from China, the biggest commodities consumer.

Materials Producers

Cliffs Natural Resources, a diversified miner, rallied 11 percent to $24.35 for the biggest advance in the S&P 500. Alcoa Inc., the largest U.S. aluminum producer, advanced 3.9 percent to $8.22, the steepest rise in the Dow. Freeport-McMoRan Copper & Gold Inc. climbed 2.6 percent to $31.61, its fourth straight gain.

Coal stocks also climbed, extending gains on the factory data from China after Moody’s yesterday raised the industry’s outlook to stable from negative. Peabody Energy Corp., the largest U.S. producer, jumped 7.8 percent to $17.90.

BlackBerry Ltd. rose 5.7 percent to $9.76, the highest in almost six weeks. Reuters reported the smartphone maker’s board may seek a buyer to take it private, citing unidentified people familiar with the talks. The company hasn’t started a formal sale process, according to the report.

Priceline.com Inc. jumped 3.9 percent to $969.89, the highest level since April 1999. The online-travel agent said second-quarter sales exceeded analysts’ estimates.

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