U.S. stocks fell, with the Dow Jones Industrial Average retreating from a record, amid concern that the Federal Reserve could begin to taper its debt-buying program as the economy continues to improve.
Eight out of 10 groups in the Standard & Poor’s 500 Index declined, as defensive sectors such as health-care, utility and consumer-staple stocks fell the most. Johnson & Johnson and Procter & Gamble Co. slumped more than 2.3%, pacing losses among the biggest U.S. companies. Lennar Corp. and PulteGroup Inc. fell at least 3.3% as investors sold shares of homebuilders.
The S&P 500 dropped 0.5% to 1,651.32 at 3:23 p.m. in New York. The Dow retreated 89.20 points, or 0.6%, to 15,320.19. Trading in S&P 500 companies was 4.7% lower than the 30-day average at this time of day.
“When yields do move higher, you’ll see some of those more defensive sectors take a hit,” Peter Jankovskis, who helps oversee $3.5 billion as co-chief investment officer of Lisle, Illinois-based Oakbrook Investments LLC, said by telephone. “The big question is how sustainable is the growth that we’re having now.”
U.S. equities retreated as much as 1.2% today after the yield on the country’s benchmark 10-year debt surged late yesterday to a 13-month high of 2.17% as a two-year sale drew the fewest bids since February 2011. Yields fell five basis points today to 2.12% as the government auctioned $35 billion of five-year notes at a lower-than-forecast yield.
The S&P 500 dropped 1.1% last week as Fed Chairman Ben S. Bernanke said the central bank could reduce monetary stimulus if officials see signs of sustained improvement in growth. The index rose 0.6% yesterday and the Dow returned to a record after data showed consumer confidence climbed to the highest level since 2008 and house prices jumped the most in seven years, indicating growth in the world’s largest economy is picking up.
“We’ll have days when people are focusing on the positive economic story and days when people are focusing more on the issue that the Fed has in terms of slowing down their asset purchases and eventually moving interest rates,” Dan Curtin, the Boston-based global investment specialist at J.P. Morgan Private Bank, which oversees about $900 billion, said by telephone.
Equities pared losses today after Fed Bank of Boston President Eric Rosengren said “significant accommodation remains appropriate at this time.” Rosengren, who is a voter this year on monetary policy, also said it would make sense to consider a “modest” reduction in bond purchases after a few more months of improvement in the labor market and economy.
The Chicago Board Options Exchange Volatility Index, or VIX, rose 1.9% to 14.75. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80% of the time, is down 18% for the year after jumping 12% last week.
Concern that slower Fed bond-buying will push Treasury yields higher prompted investors to sell shares of companies that have the highest dividend yields. Utility stocks fell 1.4% as a group, while telephone companies lost 1.3%. The two industries yield the most in the S&P 500.
While yield-seeking investors drove defensive stocks to among the biggest gains in the S&P 500 in the first quarter, they’ve been lagging other industries quarter-to-date, with utilities, phone companies and consumer-staple stocks the worst performers.
Utilities, which yield 4.1%, fell for the fifth straight day today, the longest losing streak of the year. Consolidated Edison Inc., the supplier of power to New York City, slumped 1.6% to $57.63.
Phone companies, which yield 4.4%, dropped for a third straight day. Verizon Communications Inc. lost 2.2% to $49.71 and AT&T Inc. retreated 0.5% to $35.99.
Consumer-staple stocks fell 1.8%. The group’s dividend yield is 2.8%. Procter & Gamble, the world’s largest maker of consumer products, slumped 2.4% to $78.94. Johnson & Johnson, the health-care products maker, slid 2.3% to $85.60.
McDonald’s Corp. retreated 2% to $99.25. The world’s largest restaurant chain’s global comparable sales were down 0.9% through April this year, according to Chief Executive Officer Don Thompson at an investor conference today. David Palmer, an analyst at UBS AG in New York, lowered his full-year profit forecast for McDonald’s because of a “modestly worse” European consumer environment and greater foreign currency headwinds.
The S&P Supercomposite Homebuilding Index tumbled 4% as all 11 companies in the gauge retreated. Lennar sank 4.5% to $40.33, and PulteGroup fell 3.3% to $22.03.
SLM Corp. rallied 2.1% to $23.47. The student lender known as Sallie Mae is seeking to separate its education loan management and consumer banking businesses into two publicly traded entities.
Smithfield Foods Inc. jumped 30% to $33.63 after Shuanghui International Holdings Ltd. agreed to acquire the pork processor for $4.72 billion. Shuanghui will pay $34 a share for Smithfield, a 31% premium over yesterday’s closing share price.
Tyson Foods Inc. also rose, increasing 2% to $25.35.