Stocks Drop With Treasuries, Gold as Fed Discusses TaperNick Taborek and Michael P. Regan
The Standard & Poor’s 500 Index capped its first three-day slump since September and Treasuries slid as the Federal Reserve indicated it may reduce monetary stimulus in coming months as the U.S. economy improves. Gold and silver extended losses while the dollar strengthened.
The S&P 500 fell 0.4 percent to 1,781.37 by 4:32 p.m. in New York after earlier climbing as much as 0.4 percent. Ten-year Treasury note yields increased nine basis points to 2.80 percent. Silver and gold dropped more than 2 percent and oil erased earlier gains. The Bloomberg U.S. Dollar Index, a gauge of the currency against 10 major peers, rose 0.4 percent. The euro slid against most peers with the European Central Bank said to weigh a negative deposit rate to ward off deflation.
Fed policy makers expected economic data to signal ongoing improvement in the labor market and “thus warrant trimming the pace of purchases in coming months,” according to minutes of the Federal Open Market Committee’s Oct. 29-30 meeting released today. Stocks pared gains earlier as Fed Bank of St. Louis President James Bullard said a reduction in bond purchases is “on the table” for the next policy meeting in December.
“The market’s trying to decide what it means,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion, said by phone. “It puts the market on guard for what does the data over the next two months hold.”
As of yesterday, four of five investors expected the Fed to delay a decision on the first cuts to bond buying until March 2014 or later, with 5 percent looking for a move next month, according to the latest Bloomberg Global Poll. Only one in 20 said the central bank will begin to reduce its purchases at its Dec. 17-18 meeting, according to the poll yesterday of investors, traders and analysts who are Bloomberg subscribers.
Bullard, a voter on policy this year who has backed the Fed’s record stimulus, said that a strong jobs report could increase the chance of a reduction in bond purchases next month.
“It’s definitely on the table, but it’s going to depend on the data,” Bullard said in a Bloomberg Television interview with Erik Schatzker. “A strong jobs report, I think, would increase the probability some for a December taper.” The government’s jobs report for November will be released Dec. 6.
The S&P 500 has fallen since reaching its latest record Nov. 15. The benchmark index is up about 25 percent in 2013, still poised for its best yearly gain in a decade. The index traded at 17 times its companies’ reported earnings at the last record, the highest valuation in more than three years.
Among U.S. stocks moving today, Boeing Co., Caterpillar Inc. and DuPont Co. lost more than 1 percent to lead a 0.4 percent decline in the Dow Jones Industrial Average.
Lowe’s Cos., the second-biggest home improvement retailer, slipped 6.2 percent after profit trailed analysts’ projections. J.C. Penney Co. jumped 8.4 percent as a decline in sales abated in the third quarter. Yahoo! Inc. advanced 2.9 percent after the owner of the largest U.S. Internet portal boosted its stock-buyback plan by $5 billion. Deere & Co. rose 2.1 percent after forecasting better-than-estimated annual earnings on rising demand for construction and forestry machinery.
Commerce Department data today showed U.S. retail sales increased 0.4 percent, following no change in September. The median forecast of 86 economists surveyed by Bloomberg called for a 0.1 percent advance in October. The consumer-price index dropped 0.1 percent after a 0.2 percent gain the prior month, according to the Labor Department. The median forecast of the 85 economists surveyed called for no change.
Purchases of previously-owned U.S. homes fell in October to the lowest level in four months as limited supply and higher mortgage rates restrained momentum in the housing-market recovery. Sales dropped 3.2 percent to a 5.12 million annual rate, the fewest since June, according to data released today by the National Association of Realtors. The median forecast of 76 economists projected a 5.14 million pace. The partial federal shutdown last month may have delayed some closings, the group said.
The dollar strengthened against 13 of 16 major peers, rising 0.8 percent to $1.3435 per euro.
The euro weakened against 13 of 16 major peers, with South Africa’s rand, the Canadian dollar and the yen jumping at least 0.9 percent to lead gains.
European Central Bank policy makers would reduce the rate for commercial lenders who park excess cash at the bank to minus 0.1 percent from zero, said people familiar with knowledge of the debate who asked not to be identified because the talks aren’t public.
A negative ECB deposit rate is “one of last quivers they can draw from for weapons to combat sluggish economic growth,” Michael Mullaney, who oversees more than $10 billion as Boston-based chief investment officer for Fiduciary Trust Co., said in a phone interview. “It is an admission that there’s definitely sluggish economic growth going on in the euro zone.”
German bunds erased declines after the Bloomberg News report on the ECB’s discussions, leaving the 10-year yield little changed at 1.71 percent.
Natural gas, heating oil, lean hogs and coffee rose more than 1.4 percent to lead the S&P GSCI Index of commodities up 0.4 percent, while gold and silver had the biggest declines.
Oil for December delivery settled little changed at $93.33 a barrel after rallying earlier following data on U.S. supplies. The Energy Information Administration said petroleum demand averaged over four weeks reached 20.3 million barrels a day, the most since August 2008. Stockpiles grew 375,000 barrels, below the 1 million-barrel increase forecast by analysts surveyed by Bloomberg. Distillate supplies slid to the lowest level this year.
Among stocks moving in Europe, Alcatel-Lucent SA, a network-equipment maker, lost 3.5 percent after a rights placement. The stock has almost tripled this year. Wirecard AG dropped 5.2 percent after Barclays Plc lowered its recommendation on the stock following yesterday’s earnings report. Diageo Plc declined 1.2 percent as Chief Executive Officer Ivan Menezes said he anticipates an “uncertain” global economy to be a drag on sales growth. Metro AG climbed 2.4 percent after saying it is considering a partial initial public offering of its Russian unit.
The MSCI Emerging Markets Index slipped 0.6 percent, declining for a second day. Benchmark indexes in Hungary, South Korea, Indonesia, Taiwan and the Philippines dropped at least 0.7 percent today. Brazil’s stock market is closed for a holiday. The Ibovespa dropped the most in seven weeks yesterday on speculation Latin America’s largest economy will remain stalled, making equity rallies hard to sustain.
The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong increased 0.6 percent, erasing its loss for the year, after China’s central bank elaborated on plans to free up foreign-exchange controls.