Bloomberg News

U.S. Stocks Drop to One-Month Low on Fed Bets After Retail Data

December 12, 2013

Traders Work on the Floor of the New York Stock Exchange

Traders work on the floor of the New York Stock Exchange in New York. Photographer: Jin Lee/Bloomberg

U.S. stocks fell a third day, sending the Standard & Poor’s 500 Index to a one-month low, as improving economic data spurred speculation the Federal Reserve will cut stimulus as early as next week.

Oracle Corp. dropped 2.8 percent after RBC Capital Markets LLC lowered its rating on the stock. Lululemon Athletica Inc. plunged 12 percent after projecting fourth-quarter profit that trailed analysts’ estimates. Facebook Inc. rose 5 percent as S&P Dow Jones Indices said it will join the S&P 500 next week.

The S&P 500 fell 0.4 percent to 1,775.50 at 4 p.m. in New York, extending a three-day decline to 1.8 percent after closing at a record on Dec. 9. The Dow Jones Industrial Average dropped 104.10 points, or 0.7 percent, to 15,739.43, also a one-month low. About 6.3 billion shares changed hands on U.S. exchanges, 3.3 percent above the three-month average.

“We’ve had a lot of pretty good economic news lately and in the face of that data we’re seeing the market starting to digest the exuberance it has had in 2013,” Randy Bateman, who oversees $15 billion as chief investment officer of Huntington Asset Advisors in Columbus, Ohio, said by phone. “A lot of it might be in anticipation of the FOMC announcement next week and whether this good economic news is enough for the Fed to start its tapering process.”

The S&P 500 (SPX) fell 1.1 percent yesterday after a federal budget accord fueled concern that the Fed may begin tapering bond buying earlier than forecast. Central-bank policy makers have been watching fiscal events in Washington and scrutinizing economic data to determine whether growth is robust enough to withdraw some stimulus.

Economic Data

Data today showed retail sales rose more than forecast in November as Americans bought cars and took advantage of discounts going into the holiday-shopping season. A separate report indicated applications for unemployment benefits jumped last week from an almost three-month low. The Bloomberg Consumer Comfort Index advanced for a third straight week as Americans grew more optimistic about the economy.

Data last week showed the jobless rate fell to a five-year low and the economy expanded in the third quarter at a rate faster than initially estimated.

“The economic news has been generally pretty good and the Fed has supposedly has been waiting for better economic news,” John Carey, a fund manager at Pioneer Investment Management who oversees about $200 billion, said in a telephone interview. “There was an expectation a few weeks ago that the Fed might wait until February or March. But now with good economic news, it’s starting to seep into the market that the Fed could start tapering earlier than that.”

Fed Bets

The Fed will probably start reducing its $85 billion of monthly bond purchases at its Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, up from 17 percent in a Nov. 8 poll.

The S&P 500 has surged 24 percent this year, poised for the best annual gain since 2003, as the Fed refrained from reducing its monthly bond purchases. Three rounds of monetary stimulus from the central bank have helped drive the equity index up more than 160 percent from a 12-year low in 2009.

The gauge has fallen 1.7 percent this month, leaving it on track for the first December decline since 2007. The final month of the year has been the second-best for U.S. equity returns, according to data compiled by Bloomberg that starts in 1928. The average gain for the month is 1.5 percent, more than twice the overall monthly mean of 0.6 percent.

“There will always be year-end adjustments,” Bateman said. “We’ve had a strong year and a lot of the professional investors want to capture the returns they’ve experienced and to protect the strong moves as opposed to think the market will continue with the same buoyancy as we saw in 2013.”

Volatility Gauge

The Chicago Board Options Exchange Volatility Index (VIX), the gauge of S&P 500 options known as the VIX, rose 0.8 percent to 15.54, after yesterday climbing the most since Oct. 15. The gauge has fallen 14 percent this year.

Seven of 10 main S&P 500 groups fell today. Producers of consumer staples paced declines, losing 1.4 percent. Procter & Gamble Co. slid 2.1 percent, the most since September, to $82.30.

Oracle dropped 2.8 percent to $33.60. RBC Capital’s Matthew Hedberg cut his rating on the stock to the equivalent of hold from buy and issued a 12-month price target of $35.

Cisco, Ciena

Cisco Systems Inc. (CSCO:US) fell 1.8 percent to $20.51 for a fourth day of losses that left the stock at its lowest since May. Chief Executive Officer John Chambers reiterated in a presentation to analysts that a slowdown in emerging-markets growth was a major reason why the computer-networking equipment maker missed first-quarter revenue expectations.

Ciena Corp. dropped 6.9 percent to $21.31. The provider of fiber-optic networking gear for carriers such as AT&T Inc. reported fourth-quarter adjusted earnings per share of 16 cents, missing estimates of 24 cents.

Lululemon lost 12 percent to $60.39, the lowest since August 2012. The yogawear retailer that named a new chief executive officer this week, said profit in the fourth quarter will be 78 cents to 80 cents per share. Analysts projected 84 cents, the average of 30 estimates compiled by Bloomberg. Delays in new merchandise hurt sales, the company said.

Facebook added 5 percent to $51.83. The social-networking company will replace Teradyne Inc. in the S&P 500 at the close of trading on Dec. 20. The addition to the benchmark index is a vote of confidence in the company, which met S&P’s requirements after achieving a year of profitability.

Hilton IPO

Hilton Worldwide Holdings Inc. rose to $21.50, 7.5 percent above its initial public offering price. The world’s biggest hotel operator raised $2.35 billion in a record IPO for a lodging company after selling about 117.6 million shares for $20 each, according to a statement yesterday.

Energy stocks rose 0.5 percent for the biggest gain in the S&P 500. Mexico will end 75 years of government control of its vast oil reserves after the nation’s lawmakers approved the most significant economic reform since the North American Free Trade Agreement.

The bill will change Mexico’s charter to allow companies such as Exxon Mobil Corp. and Chevron Corp. to develop the largest unexplored crude area after the Arctic Circle. Exxon, the biggest oil company by market value, increased 1.2 percent to $95.36 for the largest increase in the Dow.

Southwest Airlines Co. jumped 4.6 percent to $18.79, while Delta Air Lines Inc. added 2 percent to $28.21. U.S. airlines won a repeal of $380 million in fees they pay for aviation security each year as part of a congressional budget agreement this week that raised related charges on their passengers.

Madoff’s Crimes

JPMorgan Chase & Co. gained 0.4 percent to $56.31. The bank, which is the target of multiple U.S. Justice Department investigations, tentatively agreed to pay about $2 billion to resolve probes into whether it ignored warning signs about Bernard Madoff’s crimes, according to a person briefed on the matter.

American International Group Inc. advanced 1.5 percent to $49.42. The company, which has been unable to complete the sale of its jet-leasing business to a group of Chinese bidders, is now in talks to sell that unit to AerCap Holdings NV, people with knowledge of the matter said.

Global economic growth will accelerate at least 3.4 percent in 2014 from less than 3 percent this year as the euro area recovers from recession and China and other emerging markets stabilize, according to economists at Goldman Sachs Group Inc., Deutsche Bank AG and Morgan Stanley.

The upturn should prove bullish for equities and bearish for bonds. If it boosts corporate confidence in the durability of growth, it could further fuel demand, raising the odds that 2014 will break the pattern of recent years and come in better, rather than worse, than projected.

“So far it’s been a very bumpy, below-par and brittle expansion,” said Joachim Fels, co-chief global economist at Morgan Stanley in London. “Next year could bring a very important transition: a transition to a sounder, safer and more sustainable recovery.”

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • CSCO
    (Cisco Systems Inc)
    • $25.23 USD
    • 0.03
    • 0.1%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus