U.S. stocks drop a third day on Fed bets amid auto, retail data

U.S. stocks declined for a third day, as investors weighed reports on car and retail sales before economic data this week that may offer clues on when the Federal Reserve will reduce stimulus.

Ford Motor Co. lost 3.2%, as carmaker stocks slipped amid November sales reports. Amazon.com Inc. slid 1.7% to pace declines among retailers even as online Cyber Monday sales surged to a record. Krispy Kreme Doughnuts Inc. plunged 19% after quarterly revenue missed analysts’ estimates. Apple Inc. rose 2.2% after buying data-analytics firm Topsy Labs Inc.

The Standard & Poor’s 500 Index declined 0.5% to 1,791.95 at 3:03 p.m. in New York. The Dow Jones Industrial Average dropped 112.71 points, or 0.7%, to 15,896.06. Trading in S&P 500 stocks was 5% above the 30-day average at this time of day.

“It’s really a mixed picture right now,” Dan Veru, the chief investment officer who helps oversee $4.5 billion at Palisade Capital Management LLC, said in a phone interview from Fort Lee, New Jersey. “In the absence of any bigger data, investors are grasping for these little bits of micro data in trying to develop a conclusion. Any market that’s appreciated as much as the stock market has this year is going to be vulnerable to sell-offs.”

U.S. stocks fell yesterday as data showing manufacturing unexpectedly rose last month bolstered the case for the Fed to start curbing stimulus. Central-bank policy makers Dec. 17-18 after minutes of their last meeting in October showed officials may reduce the $85 billion in monthly bond buys should the economy improve as anticipated.

Data Watch

The Commerce Department will release data tomorrow on new home sales and the central bank will publish its Beige Book, which provides policy makers anecdotal accounts of business activity from the Fed districts. Reports on third-quarter gross domestic product and November non-farm payrolls are also due this week.

“There’s trepidation building with the employment numbers coming on Friday,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion, said by phone. “There’s nervousness that maybe the Fed takes a more hawkish tone at its December meeting if the jobs numbers are stronger than consensus estimates.”

Annual Rally

The S&P 500 has added 26% this year, challenging 2003 for the best annual gain in 15 years, after the Fed refrained from trimming its monthly bond purchases and corporate earnings have surpassed estimates.

The rally has pushed valuations higher, with the gauge trading for about 16.9 times its companies’ reported earnings, up 19% from the beginning of the year when it traded at 14.2 times profit.

“For the coming months, markets will be hesitating, and we expect volatility amid expectations of Fed tapering,” Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg, said by telephone. “The rebound in equity markets has been quite impressive, particularly in the U.S., so we expect some pause.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, rose 3.7% to 14.76, the highest level in six weeks. The measure has gained for six straight sessions, its longest rally since May 2012.

Six of 10 main S&P 500 industries retreated today, with financial stocks and producers of raw materials falling at least 1.1% to pace losses.

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