U.S. stocks retreat amid concern Fed will taper bond buying

‘Significant Accommodation’

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 Slump

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.

Homebuilders Fall

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.


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