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

Inflation Gauge

The central bank was expected to maintain the pace of assets purchases at the current level until March 2014, according to a Bloomberg survey this month.

The Fed left unchanged its statement that it will probably hold its target interest rate near zero “at least as long as” unemployment exceeds 6.5%, so long as the outlook for inflation is no higher than 2.5%.

Reports today added to signs that the pace of growth was slowing in the weeks before the partial shutdown. The cost of living in the U.S. rose as projected in September as fuel charges climbed, capping the smallest year-to-year gain in five months. Separate data based on payrolls showed companies added fewer workers than projected in October.

The partial government shutdown will reduce economic growth by 0.3 percentage points this quarter at an annual rate, according to a Bloomberg News survey of economists.

Equity Valuations

While the S&P 500’s rally has lifted equity valuations to a four-year high, with the index trading at 16 times estimated operating earnings, that’s still below the multiples at the market’s two previous peaks, when the ratio reached 16.5 in October 2007 and 25.7 in March 2000, data compiled by Bloomberg show.

Investors have also been assessing better-than-expected corporate earnings from the third quarter. Profits have grown by an average of 5% among the 312 S&P 500 companies that have reported results so far, while sales have gained 2.9%. Profits for the broad equity gauge probably increased 3.7% during the quarter as sales climbed 2.4%, according to analysts’ estimates compiled by Bloomberg.

Starbucks Corp. is among 35 members of the index to report results today. Facebook Inc., which is not in the gauge, will also report after the regular session ends.

All 10 main S&P 500 groups dropped today. Energy and consumer-staples stocks fell the most, losing at least 0.6%.

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