U.S. stocks drop as Fed keeps stimulus pace amid growth signs

U.S. stocks fell, with the Standard & Poor’s 500 Index halting a four-day winning streak, after the Federal Reserve fueled bets it will begin to cut stimulus even as it maintained the pace of monthly bond buying as expected.

LinkedIn Corp. lost 9% after its quarterly sales outlook missed analysts’ predictions. Western Union Co. tumbled 12% after saying costs tied to regulatory compliance will prevent operating profit from rising next year. General Motors Co. gained 3.6% as quarterly profit topped estimates. Buffalo Wild Wings Inc. surged 8.6% after raising its full-year earnings forecast.

The S&P 500 fell 0.3% to 1,765.87 at 3:42 p.m. in New York after rising yesterday to a third straight record. The index has jumped 24% this year, on track for its best annual gain since 2003. The Dow Jones Industrial Average lost 39.26 points, or 0.3%, to 15,641.09 today. Trading in S&P 500 stocks was 5.4% above the 30-day average at this time of day.

“People are looking at it and saying, ‘OK it’s about what we expected, so there’s no real upside, and we’ve traded it up, so now let’s back off a little bit,’” Brad McMillan, chief investment officer for Waltham, Massachusetts-based Commonwealth Financial Network, said in a phone interview. His firm has more than $71 billion under management. “Everyone was buying in the anticipation of continued stimulus. That is more or less exactly what they’ve got.”

Press On

The Fed decided to press on with the $85 billion in monthly bond purchases that have helped propel the S&P 500 higher by more than 160% from a 12-year low in 2009. The gauge has surged 5.1% in October, heading for the biggest monthly gain in two years, as lawmakers ended a 16-day government shutdown and agreed to extend the U.S. borrowing authority, avoiding a possible debt default.

While Fed policy makers said fiscal policy is “restraining economic growth,” the central bank said it sees signs of “underlying strength.” The Fed removed a sentence from its previous policy statement that had said tighter financial conditions could slow the improvement in the economy.

“When you look at the reaction in the market, investors are really taking the opinion that the taper may actually come sooner than previously thought,” Chris Gaffney, senior market strategist at EverBank Wealth Management, said by phone from St. Louis. “Everything indicates that people, when they read that statement, they felt like the Fed continues to have a positive view on the economy and they would be starting to taper maybe before the expected March date.”

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