U.S. stocks fall as investors weigh timing of Fed stimulus cuts

U.S. stocks declined, giving the Standard & Poor’s 500 Index (CME:SPU13) its first three-day drop since June 12, amid investor speculation the Federal Reserve will pare bond purchases this year as the economy strengthens.

The S&P 500 slid 0.4% to 1,690.91 at 4 p.m. in New York. The benchmark gauge has fallen 1.1% this week after closing at a record on Aug. 2.

“We’re just going through a period of consolidation,” Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis, said by phone. His firm manages $112 billion. “We still like the outlook for the broad equity market, but near term we’re probably in a trading range pattern until we get greater clarity as to what happens with quantitative easing.”

The S&P 500 sank the most in six weeks yesterday as trade data and comments from a Fed official fueled concern the central bank may reduce stimulus this year. Fed Bank of Chicago President Charles Evans said he would not rule out a decision to begin tapering in September.

Fed Bank of Cleveland President Sandra Pianalto said today there has been “meaningful improvement” in the labor market and that tapering may be warranted if it continues to strengthen.

Fed policy makers are weighing data to determine whether the economy has improved enough to warrant reducing its $85 billion in monthly bond purchases. The stimulus has helped propel the S&P 500 up more than 150% from its bear-market low in 2009.

Economic Data

A report Aug. 2 showed American companies added fewer workers than anticipated in July while the jobless rate fell to 7.4%. Separate data last week showed U.S. gross domestic product rose at a better-than-forecast rate and manufacturing expanded in July.

“The economic data is probably coming in a little better than expected, and because of that I think the market’s concerned that’s going to give the Fed the potential to begin tapering in September,” Mike Binger, who helps oversee about $360 million as senior portfolio manager at Gradient Investments LLC in Shoreview, Minnesota, said by phone.

Stocks also climbed to records amid better-than-estimated corporate earnings. Of the 432 companies in the gauge that have reported results for the second quarter, 72% have exceeded analysts’ profit estimates and 56% have beaten sales projections, data compiled by Bloomberg show.

The equity index has advanced 19% this year and is trading at 15.3 times estimated earnings, compared with an average of 13.9 over the last five years, data compiled by Bloomberg showed.

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