The Standard & Poor’s 500 Index retreated the most in two weeks as Federal Reserve Chairman Ben S. Bernanke said the central bank may reduce bond purchases later this year as the economy strengthens.
All 10 groups in the S&P 500 fell, with telephone and utility shares leading losses. Verizon Communications Inc. (VZ:US) and Travelers Cos. tumbled at least 2.2 percent, pacing declines among the largest companies. Sprint Nextel Corp. declined 4.4 percent after Dish Network Corp. (DISH) said it won’t make a new offer for the mobile-phone carrier by a deadline. Adobe Systems Inc. (ADBE:US) rose 5.6 percent after reporting second-quarter profit that topped forecasts.
The S&P 500 (SPX) lost 1.4 percent to 1,628.93 at 4 p.m. in New York, for the largest decline since May 31. The index rallied 1.5 percent in the previous two sessions. The Dow Jones Industrial Average dropped 206.04 points, or 1.4 percent, to 15,112.19 today. About 6.7 billion shares traded hands on U.S. exchanges today, or 6.8 percent above the three-month average.
“The Fed’s walking a tightrope here,” George Rusnak, national managing director of fixed-income strategies for Wells Fargo Private Bank in Philadelphia, which has $107 billion in assets, said by phone. “They’re balancing preparing the markets that tapering is going to begin, but at the same time, comforting them that it’s not going to be too dramatic and too quick to be disruptive. It’s a fine line.”
The Fed may “moderate” its pace of bond purchases later this year and may end them around mid-2014, Bernanke said. The Federal Open Market Committee said at the conclusion of a two-day meeting in Washington that risks to the outlook for the economy and the labor market have “diminished since the fall.”
The central bank said it will keep buying bonds at a pace of $85 billion a month, and repeated that it’s prepared to increase or reduce the pace of purchases depending on the outlook for the job market and inflation.
Fed officials forecast the U.S. unemployment rate will fall to 6.5 percent to 6.8 percent by the end of 2014, possibly reaching its stated threshold to raise the benchmark lending rate. The FOMC also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.
U.S. central bankers in December linked changes in the benchmark borrowing cost to the outlook for employment and prices. The FOMC said the rate will remain in a range of zero to 0.25 percent so long as unemployment remains above 6.5 percent and the outlook for inflation is no higher than 2.5 percent. The nation’s jobless rate in May was 7.6 percent.
“What markets are maybe frustrated about is 1). some people were hoping for even more clarity as to what tapering is going to look like and when it’s going to happen, and 2). people hoping that the Fed was going to say the pace of economic growth doesn’t warrant tapering asset purchases,” Joseph Tanious, a New York-based global market strategist at JPMorgan Funds, which oversees $400 billion, said by phone. “Both of those parties are disappointed.”
The Fed’s record low interest rates and bond purchases have helped fuel a rally in stocks that lifted the S&P 500 as much as 147 percent from its bear-market low in 2009.
The S&P 500 last set a record of 1,669.16 on May 21, the day before Bernanke told Congress the central bank could begin to reduce the pace of asset purchases if the job market shows signs of sustainable improvement. Ten-year (USGG10YR) Treasury yields topped 2 percent that day for the first time since March. The yield on the 10-year note climbed to 2.33 percent today, the highest level in 15 months.
The Chicago Board Options Exchange Volatility Index, or VIX (VIX), added 0.2 percent to 16.64. The gauge has rallied 47 percent since hitting a six-year low in March.
Concern that slower Fed bond-buying will push Treasury yields higher prompted investors to sell shares of companies that have the highest dividend yields. Phone stocks fell 2.7 percent as a group, while utility companies erased 2.3 percent. The two industries yield the most in the S&P 500. Verizon (VZ), which has a payout rate of 4.1 percent, slumped 2.9 percent to $50.05 for the biggest drop in the Dow.
The Bloomberg REIT Index (BBREIT), which yields 3.6 percent in dividends, posted its biggest one-day drop since November 2011. Homebuilders (S15HOME) also fell as the S&P Supercomposite Homebuilding Index ended four straight days of gains. D.R. Horton Inc. dropped 3.9 percent to $23.44, while Lennar Corp. slid 3.7 percent to $37.85.
Sprint slipped 4.4 percent to $7. Dish Network (DISH) won’t make a new offer by Sprint’s deadline, leaving SoftBank Corp (9984). as the main contender to acquire the wireless company. Dish rose 0.5 percent to $39.27. Sprint’s actions “have made it impracticable for Dish to submit a revised offer by the June 18th deadline,” Englewood, Colorado-based Dish said. “We will consider our options with respect to Sprint” while focusing on Clearwire Corp.
Travelers lost 2.2 percent to $82.28 as financial companies erased 1.4 percent as a group. The KBW Bank Index (BKX) declined 0.9 percent as all 24 of its members decreased.
Apple Inc. (AAPL:US), the world’s second-most valuable company, fell 2 percent to $423, the lowest level since April 26.
Adobe Systems (ADBE) rose 5.6 percent to $45.78 for the biggest advance in the S&P 500. Profit excluding some items for the fiscal second quarter through May was 36 cents a share, the company said. That beat the average estimate for 34 cents, according to analysts’ projections compiled by Bloomberg.
Nvidia Corp. rallied 3.1 percent to $14.84. The largest maker of chips used in computer graphics cards said it plans to license technology to other chipmakers seeking to broaden sources of revenue.
FedEx Corp. (FDX) gained 1.1 percent to $100.54. The world’s largest cargo airline forecast earnings per share for fiscal 2014 will rise as much as 13 percent to $7.04.
To contact the reporters on this story: Inyoung Hwang in New York at email@example.com; Katie Brennan in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Lynn Thomasson at email@example.com