Bloomberg News

U.S. Stocks Fall as Fed Minutes Damp Stimulus Expectation

April 03, 2012

U.S. stocks fell, a day after the Standard & Poor’s 500 Index rose to the highest level since 2008, as minutes from the Federal Reserve’s latest policy meeting damped expectations for more monetary stimulus.

Companies whose earnings are most tied to economic swings led the retreat, with S&P 500 indexes tracking energy, financial and raw-materials stocks falling at least 0.7 percent. Transocean Ltd. and Newmont Mining Corp. (NEM:US) declined more than 2.8 percent as oil and gold prices slid. General Motors Co. sank 4.6 percent after posting vehicle sales that trailed estimates.Apple (AAPL:US) Inc. advanced 1.7 percent to a record after two analysts said the stock could surge to $1,000.

The S&P 500 dropped 0.4 percent to 1,413.38 today. The Dow Jones Industrial Average lost 64.94 points, or 0.5 percent, to 13,199.55 after reaching the highest level since December 2007 yesterday. About 6.8 billion shares changed hands on U.S. exchanges, compared to the one-year average of 7.5 billion.

“Everybody would like a little more stimulus,” James Dunigan, who helps oversee $107 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “It reiterates what the chairman’s been saying that they saw continuously moderate economic growth and they stand ready to do something but at the moment, there’s no immediate need to do any additional stimulus.”

Equities extended losses as the minutes of the March 13 meeting showed a decreased urgency to add monetary stimulus. The Fed indicated that it is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target. The central bank last month affirmed its plan, first announced in January, to hold interest rates near zero through late 2014.

Factory Orders

Stocks fell earlier as figures from the Commerce Department showed factory bookings in February rose 1.3 percent after a revised 1.1 percent decline in January. The median of 60 economists’ projections in a Bloomberg News survey called for a 1.5 percent advance. Orders excluding transportation equipment increased by the most in five months.

The S&P 500 climbed to the highest level since May 2008 yesterday after a report showed stronger-than-forecast growth in U.S. manufacturing. The index rose 12 percent from January through March for the best first-quarter rally since 1998 as economic data surpassed estimates and investors speculated that the euro area would contain its sovereign-debt crisis.

‘Over-Optimistic’

“The market is over-optimistic about corporate profit and GDP growth for the rest of the year,” David Pearl, who oversees $21 billion in assets as co-chief investment officer at New York-based Epoch Investment Partners, said in a telephone interview. “We’re in a recovery, but the market has pretty much discounted that.”

Investors sold shares of companies tied to the economy. The Morgan Stanley (MS:US) Cyclical Index lost 0.8 percent. The Dow Jones Transportation Average, a proxy for economic growth, erased 0.2 percent.

S&P 500 indexes tracking energy and raw-materials producers dropped 1 percent and 0.9 percent, respectively. Transocean fell 2.8 percent to $53.64. Newmont Mining slipped 3.4 percent to $50.34. Valero Energy Corp. (VLO:US) slumped 3.5 percent to $25.40.

The KBW Bank Index (BKX) retreated 0.3 percent. JPMorgan Chase & Co. (JPM:US) declined 1.5 percent to $45.42 while Goldman Sachs Group Inc. (GS:US) fell 1.8 percent to $122.71. Morgan Stanley dropped 2.2 percent to $19.37.

General Motors sank 4.6 percent to $25.54 after posting gains in U.S. vehicle sales that trailed analysts’ estimates. GM sales of cars and light trucks rose 12 percent, according to company statements. The average of 10 analysts’ estimates was for gains of 19 percent at GM.

Beer Brands

Molson Coors Brewing Co. (TAP:US) fell 5.4 percent to $43.18. The U.S. maker of Carling lager agreed to buy StarBev LP for 2.65 billion euros ($3.54 billion) to add beer brands such as Staropramen and provide a route into central and eastern Europe.

Apple advanced 1.7 percent to $629.32. The world’s most valuable company could surge to $1,000 by 2014, Gene Munster, an analyst at Piper Jaffray Cos., said in a note to clients today. He raised his 12-month price target to $910 from $718. Brian White, an analyst at Topeka Capital Markets, yesterday set an estimate of $1,001.

Wall Street strategists cut their recommended holdings in U.S. equities to almost the lowest level since 1998, a sign that the six-month stock rally may have more room to go, according to Bank of America Corp.

Strategists’ Advice

Strategists advised investors to reduce equity allocations in six out of the past eight months, with money earmarked to stocks falling to 55.8 percent in March. The level was the lowest since January 1998, except for the seven months ended July 2009, and compared with a 15-year average of 60.7 percent, according to data compiled by Bloomberg and Bank of America.

Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, said the decline in recommended stock holdings signaled rising pessimism that she considers as a contrarian indicator because investors who have sold shares now have more money to purchase stocks.

“We take some comfort in Wall Street’s lack of optimism,” Subramanian wrote in a note yesterday. “It has historically been a bullish signal when Wall Street was extremely bearish.”

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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Companies Mentioned

  • NEM
    (Newmont Mining Corp)
    • $25.93 USD
    • 0.49
    • 1.89%
  • AAPL
    (Apple Inc)
    • $95.22 USD
    • 0.18
    • 0.19%
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