U.S. stocks fell after the Standard & Poor’s 500 Index (CME:SPU13) rallied to a record yesterday on the Federal Reserve’s decision to refrain from cutting stimulus as investors weighed the latest batch of economic reports.
ConAgra Foods Inc. lost 3.7% after first-quarter sales missed analyst estimates. Walt Disney Co. dropped 2.3% as Morgan Stanley downgraded the shares. Apple Inc. jumped 2.2% to pace advances among technology shares. Agilent Technologies Inc. added 4.8% as the provider of bio-analytical and electronic measurement services said it will split into two public companies. Rite Aid Corp. surged 20% as the drugstore chain raised its profit forecast.
The S&P 500 fell 0.2% to 1,722.73 at 1:22 p.m. in New York. The Dow Jones Industrial Average lost 34.02 points, or 0.2%, to 15,642.92. Trading in S&P 500 stocks was 25% above the 30-day average at this time of day.
“People know the Fed at some point has to start a tapering process,” Cameron Hinds, the Lincoln, Nebraska-based regional chief investment officer for Wells Fargo Private Bank, which has about $170 billion under management, said by telephone. “Longer term, there’s also an indication of a little lack of confidence from the Fed in terms of the economic growth. We’ll see what the market does this afternoon. Perhaps it will start to reflect on a little bit of the longer-term message.”
The benchmark index climbed 1.2% to a record yesterday as the Fed unexpectedly refrained from reducing bond buying. Treasury yields have jumped since May, when Fed Chairman Ben S. Bernanke first outlined a possible timetable for a reduction in asset purchases.
The Federal Open Market Committee said it wants more evidence of an economic recovery before paring its $85 billion- a-month bond-buying program, surprising economists who predicted a reduction in the plan. The Fed has held the main interest rate near zero since December 2008 and pushed its balance sheet to a record $3.66 trillion through three rounds of stimulus, helping send the S&P 500 155% higher since March 2009.
“To be fair to Bernanke, he set the conditions necessary for tapering and the conditions are not there,” Ross Yarrow, who sells U.S. equities to European investors for Robert W. Baird & Co. in London, said in a phone interview today. That’s “not because of any particular deterioration but because, by talking about tapering, he already achieved an adjustment in yields,” Yarrow said.
Ten-year U.S. Treasury yields climbed as high as 3.01% on Sept. 6 from 1.61% on May 1. They plunged 16 basis points yesterday to 2.69%.
Equity gauges whose performance some chart analysts consider predictive of stock market gains closed at records yesterday, including the Dow Jones Transportation Average, the Russell 2000 Index and the Morgan Stanley Cyclical Index.
About 83% of the stocks in the S&P 500 rose above their average price over the past 50 days yesterday, and a quarter of them reached their highest levels in 52 weeks or more, data compiled by Bloomberg show. Both measures hit their highest since Aug. 1, a day before the benchmark index peaked and started a 4.6% retreat.
Some 136 S&P 500 stocks had their 14-day relative-strength index above 70 yesterday, the most since May 20, Bloomberg data show. RSI measures the degree to which gains and losses outpace each other and some analysts who watch charts to predict market moves consider a reading higher than 70 as indicating the stock has gained too far too fast.
Economic data today showed sales of previously owned U.S. homes unexpectedly rose in August to the highest level in more than six years as buyers rushed to lock in interest rates before they rise further.
The Federal Reserve Bank of Philadelphia’s general economic index rose to 22.3 in September from 9.3 a month earlier. Readings greater than zero signal growth in the area, which covers eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 57 economists surveyed by Bloomberg called for a reading of 10.3.
Among other reports, the Conference Board’s index of leading economic indicators increased 0.7% in August. Jobless claims in the U.S. rose less than forecast last week as two states began working through a backlog of applications that were caused by computer-system changeovers.
Investors are also watching the political wrangling over the approaching limit on federal spending. Government funding expires Oct. 1 and the Treasury is expected to exhaust its ability to borrow funds in mid-October, when it will hit the statutory debt limit.
House Republicans could vote as soon as today on a spending plan that seeks to avoid a shutdown by giving party members a chance to deny funds for President Barack Obama’s health-care law. The measure is sure to be rejected by the Democratic-led Senate.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, dropped 2.4% to 13.27. The equity volatility gauge has tumbled 22% in September after rallying 26% in August, the biggest monthly gain since May 2012.
Utilities and consumer-staple shares had the biggest drops among 10 main groups in the S&P 500, losing more than 0.6%.
ConAgra fell 3.7% to $30.89. Revenue in the first quarter missed analysts’ predictions as consumer foods volume was lower than planned. General Mills Inc. slipped 2.9% to $48.70 after Wells Fargo Securities downgraded the shares to market perform from outperform.
Walt Disney dropped 2.3% to $65.57 for the steepest loss in the Dow. Morgan Stanley cut Disney to equalweight from overweight, its first downgrade of the shares in more than four years, saying the company’s growth now depends more on its creative success. Disney delayed the Pixar film “The Good Dinosaur” by 18 months, leaving the animation studio that produced “Toy Story” without an annual release for the first time since 2005.
Zions Bancorporation fell 4% to $27.59 and KeyCorp retreated 3.7% to $11.62, for the biggest declines in the S&P 500. Regional lenders had been rooting for the Fed to let interest rates rise, which would help bring relief to bankers who’ve seen lending margins squeezed and expenses pushed up by new technology and regulations.
Life insurer Lincoln National Corp. tumbled 3.7% to $42.19 and MetLife Inc. lost 3% to $47.17. Insurers invest in bonds to back future obligations to policyholders and low yields can pressure profits.
Oracle Corp. declined 0.8% to $33.59. The largest maker of corporate-database software issued a weaker-than- projected outlook for the remainder of the year, warning that it still has to close big corporate deals to remain on course.
Pier 1 Imports Inc. plunged 12% to $20.85. The home furnishings retailer cut its earnings forecast for the year after second-quarter profit fell short of analysts’ predictions. Same-store sales increased 3.5% in the quarter, compared with the average analyst estimate of 6.5%.
Technology and industrial shares had the best performance among S&P 500 industries. Apple jumped 2.2% to $474.89.
Agilent increased 4.8% to $51.68 on its plan to split into two businesses. One company will focus on life sciences, diagnostics and applied markets, retaining the Agilent name. The other will be comprised of Agilent’s current portfolio of electronic measurement products, according to a statement.
Rite Aid surged 20% to $4.44. The drugstore chain raised its annual profit and revenue forecasts after second- quarter results exceeded analyst estimates, helped by an increase in same-store pharmacy sales.
Take-Two Interactive Software Inc. advanced 1.6% to $17.48. The video game maker said first-day sales of “Grand Theft Auto V” topped $800 million worldwide, surpassing the record set by “Call of Duty: Black Ops II” last November.
Groupon Inc. gained 8.7% to $12.56. The daily deals provider was raised to buy from hold at Stifel Nicolaus & Co.
Tesla Motors Inc. climbed 7.3% to $178.41. Deutsche Bank analyst Rod Lache said in a note the electric car maker is on track to “modestly” outperform margin expectations for the third quarter and raised his price target to $200 from $160.