U.S. stocks fell, sending the Standard & Poor’s 500 Index to an almost one-month low, as economists predicted the Federal Reserve may reduce stimulus as soon as September.
Exxon Mobil Corp. and Chevron Corp. dropped at least 1.1% as energy producers slumped. Salesforce.com Inc. declined 5.5% after saying it will buy ExactTarget Inc. Dollar General Corp. fell 7.6% after reducing the top end of its full-year earnings forecast. General Motors Co. added 1.6% as S&P said the automaker will replace H.J. Heinz Co. in the benchmark equity gauge.
The S&P 500 fell 0.8% to 1,627.93 at 2:37 p.m. in New York, erasing an earlier gain of as much as 0.4%. The Dow Jones Industrial Average lost 111.57 points, or 0.7%, to 15,142.46. Trading in S&P 500 companies was 6.6% higher than the 30-day average at this time of day.
“We definitely think that equities are going to be more volatile with all the talk of Fed tapering,” David Lafferty, a Boston-based investment strategist at Natixis Global Asset Management, which manages about $785 billion, said in a phone interview. “You can see that volatility in the market jitteriness in the past days. Add to that, that in this slow growth environment, you tend to have more hiccups that you would otherwise have if you were in strong growth phase.”
Economists at Goldman Sachs Group Inc. and Deutsche Bank AG say the Fed could start winding down its bond-buying program, known as quantitative easing, this summer.
The Fed could cut $25 billion in purchases in September, split between $10 billion in mortgage-backed securities and $15 billion in Treasuries, even if this week’s employment data falls short of forecasts, Joseph A. LaVorgna, chief economist at Deutsche Bank Securities in New York, wrote in a note.
While Goldman Sachs’s forecast remains for Fed officials to wait until December before slowing their $85 billion of monthly asset purchases, the firm’s chief economist Jan Hatzius said that so-called tapering could occur sooner.
“A September tapering is certainly possible, I think that is going to depend on the data,” Hatzius said in a Bloomberg Television interview at Goldman Sachs’s Global Macro Conference in London.
The S&P 500 maintained losses after Fed Bank of Kansas City President Esther George in a speech today urged the central bank to slow bond buying as the U.S. economy picks up and investors assume greater risk.
“In light of improving economic conditions, I support slowing the pace of asset purchases as an appropriate next step for monetary policy,” according to a transcript of a talk George was set to give today. “History suggests that waiting too long to acknowledge the economy’s progress and prepare markets for more-normal policy settings carries no less risk than tightening too soon.”
The benchmark equity gauge has alternated between gains and losses for the past seven sessions as Fed policy makers continue to debate when to begin reducing monetary stimulus. The S&P 500 added 0.6% yesterday, erasing early losses after Fed Bank of Atlanta President Dennis Lockhart said the central bank is committed to its bond purchases even as divergent views on when to start scaling them back create a “mixed message” to investors.
The stimulus, and better-than-expected corporate earnings, have propelled the bull market in U.S. equities into a fifth year and driven the S&P 500 up 141% from a 12-year low in 2009.
“There’s a lingering concern that without the Fed support the economy might sputter and come to a halt,” John Carey, a fund manager at Boston-based Pioneer Investment Management Inc., said by telephone. His firm oversees about $208 billion. “I think there’s enough momentum in the economy to keep going without so much intervention from the Fed at this point.”
Investors will get more insight into the economy’s strength this week as two reports are forecast to show growth in payrolls in May. U.S. companies added 165,000 employees last month, ADP Research Institute will say tomorrow, according to a Bloomberg News survey of economists, and government data on June 7 is predicted to show similar growth.
The U.S. added 165,000 jobs in April, more than forecast, and the unemployment rate unexpectedly fell to 7.5%.
The recovery of the U.S. economy needs to show much more progress, Fed Governor Sarah Bloom Raskin said today in a panel discussion on employment in Washington today.
The Chicago Board Options Exchange Volatility Index, or VIX, rose 3.9% to 16.91. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80% of the time, has lost 6.2% this year.
Nine of 10 groups in the S&P 500 declined today, with energy producers falling 1.2% to pace losses. Chevron slid 1.2% to $122.58 and Exxon Mobil dropped 1.1% to $90.50.
Salesforce.com dropped 5.5% to $38.78. The largest maker of online customer-management tools said it signed an agreement to buy e-mail marketer ExactTarget in a deal valued at $2.5 billion. ExactTarget jumped 52% to $33.70.
Dollar General slid 7.6% to $49.50 for the biggest drop in the S&P 500. The retailer cited “moderating” sales growth for lowering its adjusted-earnings target to as much as $3.22 per share from a previous maximum of $3.30. Analysts projected $3.28, the average of estimates compiled by Bloomberg.
Phone companies rallied 0.5% for the only gain among 10 S&P 500 groups. AT&T Inc. jumped 1.3% to $35.54.
Monster Beverage Corp., the largest U.S. energy drink maker by sales volume, gained the most in the S&P 500, adding 8.5% to $58.54. The Corona, California-based company said yesterday gross sales the last two months increased 9%, an acceleration that is “encouraging,” Stifel Nicolaus & Co. said in a note today.
GM rose 1.6% to $34.98. The automaker will rejoin the S&P 500 after it was dropped following the company’s bankruptcy in June 2009. Heinz is being taken private by Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital in a $23 billion buyout. The change may prompt money managers to shift holdings to match the index.
An index that tracks chipmakers surged 0.5% for the biggest gain among 24 groups in the S&P 500. Intel Corp. advanced 1.1% to $25.52, the highest since August.