“Financial markets may have become too accustomed to what some have depicted as a Fed ‘put,’” or the idea that the central bank will loosen credit after a market decline, Fisher said in a speech in Portland, Oregon. “Some have come to expect the Fed to keep the markets levitating indefinitely. This distorts the pricing of financial assets” and can lead to “serious misallocation of capital.”
The S&P 500 closed at a record of 1,709.67 on Aug. 2, pushing its valuation to a three-year high. The benchmark index traded at 15.5 times estimated earnings, compared with an average of 13.9 over the last five years, data compiled by Bloomberg showed.
Per-share adjusted earnings have increased 2.9% for the 392 companies in the S&P 500 that posted results so far in the reporting season, with 74% beating the average analyst estimate. Analysts project companies on the gauge will increase their third-quarter earnings per share by 3.3% from a year earlier, and their profit in the fourth quarter by 9.9%, according to estimates compiled by Bloomberg.
The S&P 500 is up 20% in 2013 and has rallied about 152% from its bear-market low in 2009.
“The market has put on such a powerful move this year that regardless of the numbers that come out we’re due for some type of pullback, even if it’s brief in duration and mild in severity,” Matthew Kaufler, a portfolio manager at Federated Investors Inc. in Rochester, New York, said by phone. His firm oversees $363.8 billion.
Gauges of utility, energy and industrial companies lost at least 0.3% to lead losses in eight of the 10 main industry groups in the S&P 500 today, while technology and consumer-staples companies advanced. Intel Corp., United Technologies Corp. and Travelers Cos. fell at least 1% for the biggest declines in the Dow Jones Industrial Average.
Qualcomm Inc. dropped 0.8% as Piper Jaffray Cos. cut its rating on the company. Berkshire Hathaway Inc. climbed 0.4% after posting second-quarter earnings that exceeded analysts’ projections. Tyson Foods Inc. rose 4.1% after reporting third-quarter results that beat estimates.
Barry Knapp, head of U.S. equity strategy at Barclays Plc, raised his year-end forecast for the S&P 500 to 1,600 from 1,525. The raised projection matches the second-lowest among 17 strategists tracked by Bloomberg and implies a 6.4% retreat from last week’s closing level. Knapp said he expects a reduction in Fed asset purchases in September and the benchmark gauge to plunge below his target before stabilizing, while acknowledging that improving economic data required a higher year-end forecast.
“It appears that our bull case -- faster-than-expected improvement in capital investment and better-than-expected consumer resiliency to tax hikes -- may be playing out,” he wrote in a note to clients dated Aug. 2. “We expect a correction below our new target, followed by stabilization and a broad range that extends into early 2014 as fundamentals catch up with share prices.”
The Stoxx Europe 600 Index added 0.2% for a sixth straight advance, its longest rally since December. Fifteen of the 19 industry groups in the European index advanced, while trading volumes were 28% less than the 30-day average.