Bloomberg News

U.S. Stocks Fall as Fed, Jobs Data Fuel Stimulus Concern

January 08, 2014

U.S. stocks fell, after yesterday’s rebound in benchmark indexes, as Federal Reserve minutes and better-than-estimated payrolls data fueled concern stimulus cuts may be accelerated.

Twitter Inc. dropped 3.5 percent, falling for a third day, amid an analyst downgrade. Ford Motor Co. gained 1 percent after Chief Executive Officer Alan Mulally ruled himself out from a race for the top job at Microsoft Corp. Micron Technology Inc. jumped 9.9 percent after reporting quarterly revenue that topped estimates. Forest Laboratories Inc. climbed 18 percent as it agreed to buy Aptalis Pharma for $2.9 billion.

The Standard & Poor’s 500 Index lost less than 0.1 percent to 1,837.49 at 4 p.m. in New York. The equities benchmark rose 0.6 percent yesterday after a three-day retreat. It climbed 30 percent last year, the most since 1997. The Dow Jones Industrial Average slipped 68.20 points, or 0.4 percent, to 16,462.74 today. Almost 7 billion shares changed hands on U.S. exchanges, 15 percent above the three-month average.

“I suspect from the minutes that there might be a bias toward pulling back stimulus sooner rather than later,” Brad McMillan, chief investment officer for Waltham, Massachusetts-based Commonwealth Financial Network, said in a phone interview. “There seems to be a fairly wide consensus that stimulus should be gradually taken out.”

Fed officials saw diminishing economic benefits from the central bank’s bond buying program, according to the minutes of the meeting, when they took the first step to cut the pace of purchases. The minutes didn’t describe a set schedule for the pace of asset-purchase reductions, although “a few” officials mentioned the need for a “more deterministic path.”

Fed Minutes

“A majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue,” the record of the Federal Open Market Committee’s Dec. 17-18 meeting showed. Participants also were “concerned about the marginal cost of additional asset purchases arising from risks to financial stability” citing the potential for “excessive risk-taking in the financial sector.”

The central bank is trimming monthly bond buying by $10 billion to $75 billion this month. Three rounds of stimulus have helped propel the S&P 500 higher by as much as 173 percent from a 12-year low in 2009.

Companies in the U.S. boosted payrolls by 238,000 in December, figures from ADP Research Institute in Roseland, New Jersey, showed today. The median forecast of 36 economists surveyed by Bloomberg called for a 200,000 advance.

The Labor Department will announce on Dec. 10 figures for new hiring and the unemployment rate last month.

High Valuations

“We’re looking at a situation where equities are still likely to outperform most other markets,” Cam Albright, director of asset allocation at Wilmington Trust Investment Advisors, said in a phone interview from Wilmington. His firm oversees about $79 billion. “The question is whether if we see a jump in growth in jobs, is that going to accelerate the tapering process?”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX (VIX), slid 0.4 percent to 12.87.

Global equity values are close to reaching a record for the first time since 2007. The total market capitalization of stocks around the world has risen to $61.5 trillion, near the all-time high of $62.6 trillion from October 2007, according to data compiled by Bloomberg.

Global Growth

The International Monetary Fund plans to raise its forecast for global economic growth this year, three months after lowering its prediction, underscoring confidence in the global recovery as the outlook for the U.S. improves. IMF Managing Director Christine Lagarde said yesterday that the revision will take place in three weeks. The multilateral institution now forecasts global expansion of 3.6 percent this year.

HSBC Holdings Plc cut U.S. stocks to underweight from neutral, citing high valuations compared with the rest of the world, earnings near record highs and the possible removal of monetary stimulus at a faster rate than in other developed markets. Companies in the S&P 500 are trading at 17.3 percent reported earnings, up from 14.5 at the start of 2013.

Alcoa Inc. will kick off the start of earnings season with the release of its results after the market close on Jan. 9. Earnings for companies in the S&P 500 will climb 9.7 percent on average this year, almost twice the rate of 2013. Sales will probably increase 3.8 percent, compared with 2.2 percent last year, according to analyst estimates compiled by Bloomberg.

Twitter, Penney

Twitter dropped 3.5 percent to $59.29, increasing its slide for the week to 14 percent. An analyst at Cantor Fitzgerald LP downgraded the shares to sell from hold and said the company’s valuation is excessive. Twitter shares debuted in November and rallied 145 percent through the end of 2013.

J.C. Penney Co. lost 10 percent to $7.37, bringing its five-day slump to 19 percent. The retailer reiterated its fourth-quarter forecast and said it was “pleased” with the holiday performance as the retailer works to rebound from two years of losses. The shares fell as the company didn’t provide December sales after releasing figures the previous three months.

Tenet Healthcare Corp. (THC:US) slid 1.6 percent to $45.36 after Raymond James Financial Inc. cut the shares to market perform, a rating similar to hold, from outperform.

Ford added 1 percent to $15.54. Mulally said he has no other plans except to serve the automaker. He made the comments in an Associated Press interview to end speculation that he may leave for Microsoft. Microsoft slipped 1.8 percent to $35.76.

Micron, Forest

Micron Technology jumped 9.9 percent to $23.87. The largest U.S. maker of memory chips reported quarterly revenue that topped analysts’ estimates. Revenue in the period through Nov. 28 more than doubled to $4.04 billion, the company said. Analysts on average estimated sales of $3.72 billion, according to a Bloomberg survey.

Forest Laboratories climbed 18 percent to $69.30 after it agreed to buy Aptalis, a closely held company whose shareholders include investment firm TPG Capital, to expand in gastrointestinal and cystic fibrosis treatments.

Constellation Brands Inc. (STZ:US) gained 9.6 percent to $76.61. The alcoholic beverage company reported third-quarter profit that beat analysts’ estimates and raised its profit forecast on a stronger outlook for its beer business.

Macy’s Inc. rallied 4.8 percent to $54.32 in extended trading as of 4:50 p.m. New York time. The department-store chain issued a profit forecast after the market close that exceeded analysts’ estimates and said it would cut 2,500 jobs to reduce costs.

To contact the reporters on this story: Nick Taborek in New York at ntaborek@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net; Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • THC
    (Tenet Healthcare Corp)
    • $39.44 USD
    • -0.01
    • -0.03%
  • STZ
    (Constellation Brands Inc)
    • $77.97 USD
    • -0.03
    • -0.04%
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