U.S. stocks fell, with the Standard & Poor’s 500 Index poised for the longest retreat in a month, as financial shares slumped and investors watched speeches from Federal Reserve officials for clues on monetary policies.
Goldman Sachs Group Inc. and Citigroup Inc. declined more than 2.2% as Atlantic Equities LLP forecast a drop in fixed-income trading revenue for the biggest U.S. banks. Homebuilders slipped 1.1% as a group before Lennar Corp. and KB Home report earnings tomorrow. Apple Inc. (NASDAQ:AAPL) surged 4.9% after saying first-weekend sales of its new iPhones topped 9 million units.
The S&P 500 (CME:SPZ13) retreated 0.3% to 1,704.10 at 2:22 p.m. in New York. The benchmark gauge has lost 1.3% over three days, giving back all its gains from the Fed’s unexpected move last week to maintain stimulus levels. The Dow Jones Industrial Average slipped 29.13 points, or 0.2%, to 15,421.96. Trading in S&P 500 stocks was 2.2% above the 30-day average at this time of day.
“At some point, investors are going to say, ‘What’s underpinning this strong rally? We need some solid numbers,’” Scott Armiger, chief investment officer at Christiana Trust in Wilmington, Delaware, said in a phone interview. The firm has $6 billion under administration. Fed policy makers “are trying to neutralize the market. This time Bernanke said no tapering and they’re all running out and saying ‘wait a minute, folks, don’t get carried away.’”
The S&P 500 rose 1.3% last week, touching a record high, as the Federal Open Market Committee said at its Sept. 17-18 meeting that it will continue to buy $85 billion of assets a month, surprising economists who had forecast a reduction. The S&P 500 has gained 6.1% for the quarter and is up 20% for the year.
The central bank has left its main interest rate near zero since December 2008 and has expanded its balance sheet to a record $3.66 trillion through three rounds of stimulus. The quantitative easing program has helped the S&P 500 surge more than 150% since March 2009.
The rally has pushed equities to their highest valuations in more than three years. At a record close on Sept. 18, the S&P 500 traded at 16.5 times reported earnings, a multiple not seen since May 2010, data compiled by Bloomberg show.
Three regional bank presidents spoke today. Fed Bank of New York President William C. Dudley said policy makers must “forcefully” push against economic headwinds as the U.S. has yet to show “any meaningful pickup” in momentum. Fed Bank of Atlanta President Dennis Lockhart said monetary policy should focus on creating a more dynamic economy. Fed Bank of Dallas President Richard Fisher said the central bank harmed its credibility with the decision last week.
The S&P 500 fell 0.7% on Sept. 20 as Fed Bank of St. Louis President James Bullard said policy makers may decide to reduce their monthly bond purchases at the meeting in October.
“The more people who speak from the Fed in one day, the less clarity there is,” Richard Sichel, who oversees about $1.9 billion as chief investment officer at Philadelphia Trust Co., said by phone. “People will be hanging at every word that’s said for more clues about our monetary policy.”
Even as investors focus on the Fed’s policies, a risk is rising from another corner of Washington. Hardening positions on the federal budget and borrowing limit, and recent political setbacks suffered by both President Barack Obama and Republican congressional leaders as they go into the fight, are raising the odds of a government shutdown, debt default or near-miss that could roil equities markets.
Forty% of global investors surveyed in a Sept. 10 Bloomberg poll said they would pull back on U.S. markets in the event of a government shutdown, which many economists say would be less damaging than a debt default.
“We are in for another ugly confrontation,” said Howard Ward, the chief investment officer for growth equity at Rye, New York-based Gamco Investors Inc., which oversees about $40 billion. “Even though everyone knows the impasse will be short- lived, it is a sad reminder of how dysfunctional Washington has become. It will be a catalyst for taking profits after the recent run-up.”
Outside the U.S., German Chancellor Angela Merkel was re- elected yesterday, winning the biggest tally since Helmut Kohl’s post-reunification victory of 1990. In Asia, the preliminary reading of a purchasing managers’ index for Chinese manufacturing compiled by HSBC Holdings Plc and Markit Economics climbed to 51.2 in September from 50.1 in August. That beat the 50.9 median estimate of economists surveyed by Bloomberg News.
U.S. equities will likely extend their declines this week, if history is any guide, after the Sept. 20 expiration in futures and options contracts, according to MacNeil Curry, a New York-based technical strategist at Bank of America Corp.
When the quarterly expiration process known as triple witching occurs in September, the following week has resulted in losses 68% of the time for the S&P 500 since equity index futures were created in 1982, according to a study by Curry. In the past 10 years, the S&P 500 has fallen 80% of the time in the week after September triple witching, averaging a decline of 1.9%, the data show.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, jumped 8%, the most since Aug. 27, to 14.17. The measure is still down 21% this year.
Eight of 10 S&P 500 industry groups declined, with financial shares falling 1.2% as a group for the largest drop. Utility and technology shares were the only gainers, rising 1% and 0.5%, respectively.
The largest U.S. banks’ fixed-income trading revenue will probably fall 20% in the third quarter from a year ago on lower volumes, Richard Staite, an analyst at Atlantic Equities wrote in a note. Staite cut his estimate for Goldman Sachs’s per-share earnings 18% to $2.47 and Citigroup’s by 14% to $1.05.
Goldman Sachs slid 2.2% to $165.96 for the biggest retreat in the Dow. Citigroup sank 2.9% to $49.71. JPMorgan Chase & Co. retreated 1.9% to $51.78.
The S&P Supercomposite Homebuilding Index declined 1.1%, with all but two of its 11 members falling. Lennar slid 1.1% to $34.78 while KB Home lost 3% to $17.11.
Lennar’s profit growth during the three months ended August probably slowed to 13% from 105% in the previous quarter while KB Home’s earnings may have increased 32%, less than half its pace in the previous quarter, analyst estimates compiled by Bloomberg show.
Apple jumped 4.9% to $490.47. The company sold 9 million iPhone 5s and 5c models. That topped the 5 million in opening-weekend sales for last year’s model and surpassed analyst estimates that ranged from 6 million to 7.75 million, according to a Bloomberg poll.
Pandora Media Inc., the biggest web radio service, tumbled 11% to $24.11 after Apple said more than 11 million listeners have used iTunes Radio since its launch this year.
BlackBerry Ltd. added 1.3% to $8.84. The company entered a tentative agreement for a $4.7 billion buyout from a group led by its biggest shareholder, Fairfax Financial Holdings Ltd., forging a path to go private after a new line of smartphones failed to catch on.
Shares of BlackBerry fell as much as 6.1% earlier as Jefferies Group LLC lowered its rating on the shares to hold from buy, saying the handset business has a negative value. The stock tumbled 17% on Sept. 20 after the company posted quarterly sales that trailed analysts’ estimates by half and announced 4,500 job cuts.
General Electric Co. advanced 1.2% to $24.29 after winning contracts worth $2.7 billion from a unit of Sonelgaz, Algeria’s state-owned electricity and gas company. GE will supply heavy-duty gas turbines, steam turbines and generators for nine power plants, according to a statement.
Walgreen Co. added 2.3% to $56.77. Morgan Stanley boosted its rating on the stock to overweight from equal weight. The stock slipped 0.8% Sept. 20 after rising in 14 of the previous 15 sessions.