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.

Auto Inventories

Carmakers and parts suppliers fell the most among 24 S&P 500 industries as Ford forecast today that its North American production will slip 1.8% in next year’s first quarter amid rising inventories.

Automakers entered their year-end sales push last month with their biggest supply of cars and trucks in eight years. If buyers don’t absorb enough supply, more automakers, including General Motors Co. and Chrysler Group LLC, may need to follow Ford in trimming output to avoid margin-slicing discounts.

Sales at Ford and GM exceeded or met analysts’ estimates for November. Ford fell 3.2% to $16.51 and GM dropped 3% to $37.93.

An S&P index of retailers lost 0.8%, extending yesterday’s 0.7% drop, even as online sales on Cyber Monday rose 21% from a year ago for a single-day record.

Retail Retreat

The gain comes after online spending increased 15% to a record $1.2 billion on Black Friday, according to research by ComScore Inc. Still, because of an in-store slump, total purchases during the four days beginning with the Nov. 28 Thanksgiving holiday fell for the first time since 2009, according to a survey commissioned by the National Retail Federation.

Amazon slid 1.7% to $385.49 and Ross Stores Inc. lost 1.8% to $73.37 for a fourth day of declines.

Abercrombie & Fitch Co. rallied 5.1% to $35.76 for the biggest gain in the S&P 500. Engaged Capital LLC, which owned 400,000 shares as of Aug. 30, recommended the clothing retailer consider selling itself or begin searching for a new chief executive officer to replace CEO Michael Jeffries, whose contract expires Feb. 1.

Krispy Kreme plunged 19%, the most since April 2011, to $19.81. The company reported third-quarter revenue of $114.2 million after yesterday’s market close, missing the average analyst estimate of $115 million.

Half-Priced Chicken

Yum! Brands Inc., the owner of KFC and Pizza Hut, fell 3% to $75.41. The company posted a surprise gain in same- store sales in China last month as promotions lured diners to its fried-chicken chain. KFC same-store sales in China rose 16% in the first 10 days of the month, driven by a “Half Priced” bucket promotion, while they were down 8% in the last 20 days of November as the offer ended.

Apple rose 2.2% to $563.33, headed for the highest close in a year. The iPhone maker paid more than $200 million for Topsy, people with knowledge of the deal said, giving the world’s most valuable company new tools to spot trends as they emerge on Twitter Inc.’s social network.

Separately, UBS AG raised its recommendation on the stock to buy from neutral, or hold, and increased its price estimate for the shares to $650 from $540.

Tesla Motors Inc. jumped 16%, the most since August, to $143.80. The carmaker’s Model S, the electric car being investigated for a possible U.S. recall, was cleared of any safety defect in a review by Germany’s transportation regulator.

Cancer Drugs

OncoMed Pharmaceuticals Inc. surged 92% to $26.88. The drug developer that first sold shares to the public in July signed a $177.25 million agreement with Celgene Corp. on as many as six potential cancer medicines. The shares of the Redwood City, California-based company had declined 18% from the initial public offering through yesterday.

Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said the unprecedented cash added to the financial system by central banks is raising the risk of a slide in global asset prices.

“Investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth,” Pimco’s Gross wrote in his monthly investment outlook posted on Newport Beach, California-based Pimco’s website today.

The Fed, Bank of Japan, European Central Bank and Bank of England “are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high-quality assets,” he said.


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