Stocks pared gains and Treasuries fell on concern the Federal Reserve may signal it will scale back stimulus efforts at the conclusion of its next policy meeting.
The Standard & Poor’s 500 Index climbed 0.3% to 1,631.83 at 3:01 p.m. in New York, trimming an earlier rally of as much as 1.2%. Treasury 10-year note yields rose four basis points to 2.17%. Japan’s currency depreciated against 12 of 16 major peers, weakening the most versus the Korean won and U.S. dollar. Turkey’s lira snapped a four-day rally after police stepped up their crackdown on protesters in Istanbul. Natural gas jumped 4.3% after losing 2.5% last week.
Stocks trimmed their advance after the Financial Times reported that Fed Chairman Ben S. Bernanke is likely to signal the central bank is close to tapering its $85 billion in monthly asset purchases at the conclusion of a policy meeting June 19.
“We continue to have these momentary scares around what the next step for the Fed might be, which seems to send some chills up the spine of the market, but that’s a little overdone,” James Dunigan, who helps oversee $112 billion as chief investment officer in Philadelphia for PNC Wealth Management, said by telephone.
The Federal Open Market Committee starts a two-day policy meeting tomorrow. About $2.7 trillion has been erased from the value of global equities since Bernanke said May 22 that U.S. policy makers “could” scale back stimulus efforts if the employment outlook shows “sustainable improvement.” The Fed Bank of New York’s general economic index climbed to the highest reading since March and U.S. homebuilder confidence surged to a seven-year high.
The S&P 500 fell 0.6% June 14, sliding 1% in the week, after the International Monetary Fund cut its forecast for U.S. economic growth in 2014 to 2.7% from 3% and said any tapering of Fed support needs to be handled properly. The benchmark equity gauge rallied an average 16% over two years the last four times the Fed started raising interest rates, according to data compiled by Bloomberg.
“If the Fed does decide to remove some if its support, the truth of the matter is, historically, equity markets can survive in a rising rates environment,” Alan Gayle, a senior strategist at RidgeWorth Capital management in Richmond, Virginia, which oversees about $48 billion of assets, said in a phone interview.