U.S. stocks fluctuate on Fed officials’ comments

July 12, 2013 11:00 AM

U.S. stocks fluctuated after benchmark indexes closed at records yesterday, as investors weighed comments from Federal Reserve officials amid better- than-expected bank earnings and a reduced profit forecast from United Parcel Service Inc.

UPS fell 6.4% as it lowered its forecast for earnings in 2013, citing a slowing economy in the second quarter. Boeing Co. plunged 4.8% after a parked 787 Dreamliner caught fire at London’s Heathrow Airport. Financial stocks rose the most out of 10 S&P 500 group after JPMorgan Chase & Co. and Wells Fargo & Co. reported earnings that topped analysts’ estimates.

The S&P 500 fell less than 0.1% to 1,674.98 at 3:25 p.m. in New York. The Dow Jones Industrial Average lost 40.61 points, or 0.3%, to 15,420.31. Trading in S&P 500 stocks was 15% below the 30-day average at this time of day.

“The market is catching its breath after a big push to a record high,” Alan Gayle, senior strategist at RidgeWorth Capital Management, said by telephone from Atlanta. His firm oversees about $48 billion. “The market is encouraged by the earnings releases so far but UPS was disappointing. That’s a good GDP bellwether stock. When they give lowered guidance, investors will watch very carefully.”

The S&P 500 gained 1.4% to a record 1,675.02 yesterday after Fed Chairman Ben S. Bernanke backed sustained monetary stimulus. The gauge has added 2.6% in the past five days, headed for a third week of gains and its biggest rally since Jan. 4. The surge has helped to erase losses since Bernanke first signaled the Fed may trim its $85 billion in monthly bond purchases later this year.

Plosser, Bullard

Equities retreated earlier today after Fed Bank of Philadelphia President Charles Plosser, who has opposed the central bank’s current round of asset purchases, said the Fed should begin tapering in September. The benchmark gauge halted the decline after Fed Bank of St. Louis President James Bullard said the central bank shouldn’t cut back until inflation accelerates toward the Fed’s 2% goal.

The debate among policy makers in the past six weeks has sent markets lurching as investors speculate on the timing and rate of any cuts in bond buying. Central bank stimulus has helped fuel a rally in stocks worldwide, with the benchmark U.S. index surging as much as 148% from its March 2009 low.

‘Economy Driven’

The S&P 500 sank as much as 5.8% after reaching a record May 21, the day before Bernanke said the central bank may start paring stimulus efforts as soon as September if the economy improves in line with its forecasts. The index has rebounded 6.4% from a June 24 bottom as economic data from hiring to housing tempered concern over possible tapering.

“The Fed’s hope is that investors shift over time from liquidity-driven strength to economy-driven strength,” James Gaul, a portfolio manager at Boston Advisors LLC, which oversees about $2.6 billion in assets, said by phone. “I don’t know if we’ve seen true economic strength here yet, but we’re a lot closer than we were a couple of years ago.”

A report today showed consumer confidence unexpectedly cooled in July as Americans became less optimistic about the outlook for the economy. Separate data indicated wholesale prices in the U.S. rose more than projected in June, reflecting higher costs for energy and automobiles.

Earnings Estimates

Investors have begun to turn their attention toward earnings results this week. Profit at companies listed on the S&P 500 rose 1.8% last quarter, down from a projection of 8.7% six months ago, according to analyst estimates compiled by Bloomberg. Lower expectations helped about 73% of the companies in the benchmark measure exceed forecasts by an average of 5.1% for the first three months of the year, Bloomberg data show.

UPS said a slowing U.S. economy hurt second-quarter profit and revenue. The world’s largest package delivery company and rival FedEx Corp. are often viewed as economic bellwethers because they transport goods across the world.

UPS tumbled 6.4% to $85.57, the most intraday since May 2010. FedEx slid 2.4% to $101.87.

Boeing plunged 4.8% to $101.76 for the biggest retreat in the Dow. London Heathrow airport closed to flights after a fire involving a Boeing 787 jet operated by Ethiopian Airlines Enterprise, while a second Dreamliner was forced to abandon a trip with technical issues.

Fire Incidents

The aircraft, Boeing’s newest model and beset by battery- related fire incidents that grounded the global fleet earlier this year, was sprayed with fire-retardant foam after the Heathrow event.

Precision Castparts Corp., the maker of metal forgings for jet engines and a Boeing supplier, slid 1.4% to $234.06.

Reports from JPMorgan and Wells Fargo, the first of the six largest U.S. lenders to report, drove bank stocks 1.3% higher as a group.

Wells Fargo rose 1.6% to $42.56. The largest U.S. home lender said second-quarter profit climbed 19% as the company clamped down on expenses.

JPMorgan slipped 0.6% to $55.02 as the biggest U.S. lender by assets reported a 31% increase in second- quarter profit that beat analysts’ estimates as revenue from trading stocks and bonds climbed.

Netflix Inc. gained 5% to $256.32, the highest level since August 2011. The largest subscription video-streaming service rose to its highest in more than 23 months as expectations for strong customer growth prompted Barclays Plc to boost its price target for the shares.

Cancer Drugs

Alexion Pharmaceuticals Inc. surged 14% to $115.83. Roche Holding AG, the largest maker of cancer drugs, is seeking billions of dollars in financing for a potential takeover of the maker of a drug for rare blood diseases, people with knowledge of the situation said.

Regeneron Pharmaceuticals Inc. added 7% to $265.16 after Joshua Schimmer, a New York-based analyst at Lazard Capital Markets Ltd., lifted his rating on the maker of the eye medicine Eylea to buy from neutral.

WebMD Health Corp. surged 26% to $34, the highest since January 2012. The company said second-quarter revenue rose to as much as $125 million, above analyst estimates for $117 million. The health information services provider raised its full-year earnings outlook to as much as $11 million, from a previously anticipated loss of as much as $13 million. Shares have more than doubled this year.


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