U.S. stocks fell, erasing an early rally, as investors weighed remarks by Federal Reserve Chairman Ben S. Bernanke and minutes from the central bank’s latest policy meeting about the pace of stimulus efforts.
Target Corp. lost 4.8 percent after profit fell 29 percent as higher taxes and cooler temperatures hampered sales. Pfizer Inc. (PFE:US) rallied 2.5 percent after offering investors a share exchange to reduce its stake in Zoetis Inc. Saks Inc. (SKS:US) soared 15 percent after people with knowledge of the matter said the retailer has hired Goldman Sachs Group Inc. to explore options including a sale. Toll Brothers Inc. (TOL:US) jumped 4.7 percent after beating analysts’ earnings estimates.
The Standard & Poor’s 500 Index (SPX) fell 0.4 percent to 1,662.56 at 2:10 p.m. in New York, after rallying as much as 1.1 percent earlier. The Dow Jones Industrial Average lost 18.13 points, or 0.1 percent, to 15,369.45. Trading in S&P 500 stocks was 24 percent above the 30-day average during this time of day.
U.S. stocks rallied early in the day after Bernanke said in prepared remarks to Congress that a premature withdrawal of quantitative easing would put the economic recovery at risk. Equities pared gains after he said the central bank could “step down” the pace of asset purchases in the next few meetings if the labor market continues to improve and “we have confidence that that is going to be sustained.”
The chairman has said he would continue stimulus efforts until the jobless rate falls to 6.5 percent or inflation rises above 2.5 percent.
Many Federal Reserve officials said more progress in the labor market is needed before deciding to slow the pace of asset purchases, according to minutes of their last meeting.
“Most observed that the outlook for the labor market had shown progress” since the-bond buying program began in September, according to the record of the April 30-May 1 gathering released today in Washington. “But many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate.”
Fed Bank of New York President William C. Dudley said in an interview with Michael McKee on Bloomberg Television that policy makers will know in three to four months whether the economy is healthy enough to allow the central bank to begin reducing its stimulus program.
“If they were to taper, it might be a good sign that the economy is capable of standing on its own feet,” Terry L. Morris, a senior equity manager who helps oversee about $2.6 billion at Wyomissing, Pennsylvania-based National Penn Investors Trust Co., said by phone. “But we’re programmed to believe that the market is going to go down when this happens. It’s probably what’s going to happen initially, but the market will likely start to work its way higher.”
A slide in Treasury prices after Bernanke’s remarks sent the 10-year note’s yield up as much as 11 basis points to 2.04 percent, above the S&P 500’s 2.03 percent dividend yield for the first time in more than a year, according to data compiled by Bloomberg.
The S&P 500 has surged 146 percent from its 12-year low in 2009, driven by better-than-estimated corporate earnings and three rounds of bond purchases from the Fed. The index trades at 16.3 times reported operating profit, 16 percent below the average since 1998, data compiled by Bloomberg show.
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