U.S. stocks fell as industrial shares sank and investors watched crises overseas before a Federal Reserve policy decision this week and reports on economic growth.
Cummins Inc. fell 3.3% to lead industrial shares lower. AcelRx Pharmaceuticals Inc. tumbled 36% after saying it failed to win approval for its pain treatment Zalviso from the Food and Drug Administration. Trulia Inc. jumped 8.8% as Zillow Inc. agreed to purchase the company for $3.5 billion. Family Dollar Stores Inc., a discount store chain, soared 22% after Dollar Tree Inc. agreed to buy it.
The Standard & Poor’s 500 Index (CME:SPU14) fell 0.3% to 1,972.18 at 9:55 a.m. in New York. The Dow Jones Industrial Average declined 57.36 points, or 0.3%, to 16,903.21. Trading in S&P 500 stocks was about 4.8% below the 30-day average during this time of day.
The S&P 500 ended little changed last week as investors weighed corporate earnings. The gauge closed 0.5% below its all-time high of 1,987.98 reached July 24. The index has rallied about 7% this year, as the economy shows signs of recovering from a 2.9% drop in the first quarter amid renewed pledges from the Fed to continue stimulus.
The U.S. central bank announces its next policy decision at the conclusion of a two-day meeting on July 30. Investors will get a reading on second-quarter growth that same day, while the government’s labor report on Aug. 1 may show employers added 231,000 jobs this month.
The Fed’s Open Market Committee will scale back its monthly asset purchases to $25 billion from $35 billion on July 30, according to economists surveyed by Bloomberg, keeping it on pace to end the program late this year. The policy-making committee last month repeated it’s likely to “reduce the pace of asset purchases in further measured steps” and that it expects interest rates to stay low for a “considerable time” after the bond-buying ends.
Chair Janet Yellen and her fellow policy makers are debating how long to keep interest rates near zero as the U.S. labor market improves and inflation moves closer to the Fed’s 2% goal.
Three rounds of monetary stimulus from the Fed and better than-forecast corporate earnings have driven the S&P 500 up 192% from its March 2009 bottom. The S&P 500 is trading at 18.1 times earnings of its members, around the highest valuation for the gauge since 2010.
Goldman Sachs Group Inc. said in a report last week that equities are at risk of a temporary selloff, citing rising bond yields and high valuations for lowering its rating on stocks.
A report from the National Association of Realtors at 10 a.m. may show a pending home-sales index climbed 0.5% in June following a 6.1% gain in May.
Pfizer Inc., Reynolds American Inc. and American Express Co. are among some 150 S&P 500 companies reporting this week. About 78% of U.S. companies that have posted results this season have beaten analysts’ estimates for profit, while 66% exceeded sales projections, according to data compiled by Bloomberg.
Quarterly profit growth is poised for the fastest increase in almost three years. Companies in the S&P 500 have reported an 11% gain in second-quarter earnings, data compiled by Bloomberg show. Should the pace continue, the gain would exceed all periods since the third quarter of 2011.
“It is quite an important week in terms of earnings reports,” Raimund Saxinger, a fund manager at Frankfurt-Trust Investment GmbH, which oversees about $22 billion, said in a phone interview. “Earnings have been good and markets want to see that this is going to carry on.”
Outside the U.S., international pressure mounted on Israel to end its three-week offensive in the Hamas-controlled Gaza Strip, with President Barack Obama and the United Nations Security Council demanding an immediate truce.
In Europe, President Vladimir Putin faces intensifying U.S. and European sanctions aimed at forcing him to help end the separatist war in neighboring Ukraine. The Obama administration said it had satellite photos showing Russia firing across the border at Ukraine forces.