Disruptions to the economy prompted speculation the Fed would maintain the pace of its $85 billion in monthly bond purchases. BlackRock Inc. and Pacific Investment Management Co. say the Fed will postpone tapering as a result of the debt- ceiling debate.
“Because of the disruption, because of the uncertainty, what’s likely to happen is a slower pace of tapering,” Russ Koesterich, the chief investment strategist at BlackRock in New York, said in an interview on Bloomberg Television. BlackRock is the world’s largest money manager with $4.1 trillion of assets.
The Fed “may now have no choice but to stay longer in its intense policy experimental mode –- due both to the likelihood of weaker data and to a perceived need to take out insurance for the economy against future political dysfunction,” said Pimco Chief Executive Officer Mohamed El-Erian in a CNBC blog posting.
The Fed stimulus has helped propel the S&P 500 up by more than 150% from its March 2009 low. The gauge has rallied 20% this year and closed at an all-time high on Sept. 18 after the Fed unexpectedly delayed reducing the pace of stimulus at its last policy meeting. The central bank next convenes Oct. 29-30.
The rally in stocks this year has pushed valuations to a three-year high and is the broadest since at least 1990. The S&P 500 trades at 16.5 times reported operating profit, a 17% increase from the beginning of 2013, according to data compiled by Bloomberg. Some 446 stocks in the gauge have posted year-to- date gains through yesterday, data show. The second-broadest rally in the period was in 1995, when 434 stocks in the benchmark gained through Oct. 16.
Companies from Knoll Inc. to NCI Inc. have said they expect the shutdown to affect fourth-quarter revenue. Knoll, an officer furniture maker, estimates about $10 million of government business to be pushed into next year, Chief Executive Officer Andrew Cogan told analysts yesterday on a conference call.
Stanley Black & Decker Inc.’s shares yesterday dropped 14%, the most since 1992, after the toolmaker reduced its full-year profit forecast in part because of the shutdown. Campbell Soup Co. has seen consumers pull back after a year that included higher payroll taxes, along with the impasse in Washington, Chief Executive Officer Denise Morrison said at Fortune magazine’s Most Powerful Women Summit in Washington.
Some 24 companies in the S&P 500 report results today, including Google Inc. Profits for companies in the gauge probably increased 1.4% during the third quarter as sales rose 2%, according to analysts’ estimates compiled by Bloomberg.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, sank 10%, extending a two-day slide to 29%. The gauge has retreated 27% this year.
IBM plunged 5.6% to $176.31 after third-quarter revenue fell 4% to $23.7 billion, $1 billion less than analysts had forecast in a Bloomberg survey.