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U.S. Stocks Fall as Investors Weigh Plosser Comments

By Inyoung Hwang
May 09, 2013 4:47 PM EDT 23 Comments
U.S. Stocks Little Changed After S&P 500 Climbs to Record High
U.S. Stocks Little Changed After S&P 500 Climbs to Record High

U.S. stocks retreated, following five successive records for the Standard & Poor’s 500 Index (SPX), as the Federal Reserve Bank of Philadelphia President Charles Plosser said he favors scaling back the central bank’s pace of stimulus.

Utility and telephone shares fell the most out of 10 S&P 500 groups. AT&T Inc. sank 1.3 percent, among the biggest declines in the Dow Jones Industrial Average. Monster Beverage Corp. (MNST) (MNST) dropped 5.2 percent after the chief executive officer said sales growth in April slowed. Precision Castparts Corp. (PCP) (PCP) jumped 7.6 percent for the biggest S&P 500 gain after posting earnings that topped projections.

The S&P 500 (SPX) declined 0.4 percent to 1,626.67 in New York today. The Dow fell 22.50 points, or 0.2 percent, to 15,082.62. About 6.2 billion shares traded hands on U.S. exchanges today, in line with the three-month average.

“The market’s scared about what that would bring for equities as we are so addicted to stimulus,” Rick Fier, director of equity trading at Conifer Securities LLC in New York, said in an e-mail on the potential for the Fed to taper stimulus soon. His firm oversees $8 billion in assets. “This is why the market is only going up, so any change will make people nervous. It will create more volatility and opportunities going forward.”

Plosser said in New York today he favors reducing the monthly $85 billion bond purchases as early as the next Federal Open Market Committee, which is scheduled to meet June 18-19. He said unemployment will fall to 7 percent at the end of this year.

FOMC Debate

Plosser’s remarks highlight a debate within the FOMC on whether to expand or curb the pace of stimulus that has pumped up the central bank’s balance sheet to $3.32 trillion. At their April 30-May 1 meeting, policy makers said they’re prepared to increase bond buying in response to changes in the labor market or inflation.

U.S. stocks rallied yesterday for a fifth straight day of gains, as companies forecast earnings that beat analysts’ estimates. The S&P 500 has surged 14 percent so far this year amid optimism central banks will continue to use stimulus to support economic growth. The equity benchmark has entered the fifth year of a bull market, fueled by three rounds of bond purchases from the Fed.

In Europe, the Bank of England’s Monetary Policy Committee today left its bond-purchase program unchanged at 375 billion pounds ($584 billion). The bank also kept its key interest rate at a record low of 0.5 percent. In Asia, the Bank of Korea cut its benchmark seven-day repurchase rate to 2.5 percent from 2.75 percent.

Jobless Claims

Applications (INJCJC) for unemployment insurance payments unexpectedly dropped last week, and the average over the past month fell to the lowest level since before the last recession, Labor Department figures showed today.

A separate report showed inventories at U.S. wholesalers climbed in March as sales slumped by the most in four years, indicating companies may limit orders to factories.

About 71 percent of the S&P 500 companies that have released results since the start of the earnings season have exceeded profit projections, while 52 percent have missed sales estimates, data compiled by Bloomberg show. Dean Foods Co. and Priceline.com Inc. are among 10 S&P 500 companies reporting earnings today.

Utility companies lost 1.6 percent, while phone stocks erased 1 percent. Financial companies declined 0.8 percent as a group, as JPMorgan Chase & Co. slumped 1.5 percent $49.04 for the biggest drop in the Dow. AT&T sank 1.3 percent to $37.33.

Negative Publicity

Monster Beverage tumbled 5.2 percent to $54.01. The largest U.S. energy drink maker by sales volume has experienced a slowdown this year through April, in part due to negative publicity over the safety and caffeine content of its beverages, CEO Rodney Sacks said on a conference call yesterday.

Activision Blizzard Inc. (ATVI) dropped 5.7 percent to $14.39. Bobby Kotick, chief executive officer of the largest U.S. video-game maker, said “the risks and uncertainties in the back half of 2013 are more challenging than our earlier view, especially in the holiday quarter.”

Rackspace Hosting Inc. (RAX) tumbled 25 percent to $39.36. The provider of Web-based computing posted first-quarter earnings and sales that missed projections.

News Corp. (NWSA) advanced 4.6 percent to $33.44. The Rupert Murdoch-led media company tripled net income to $2.85 billion in its third quarter. Profit excluding some items of 36 cents a share beat the 35-cent average of analyst estimates compiled by Bloomberg.

Precision, Tesla

Precision Castparts jumped 7.6 percent, the biggest gain in the S&P 500, to a record $206.68. The maker of metal components reported fourth-quarter earnings of $2.82, exceeding the $2.75 estimated by analysts on average.

Tesla Inc. increased 24 percent to $69.40, the highest since its market debut in June 2010. The maker of electric cars run by billionaire Elon Musk posted its first profit and beat estimates on sales of luxury Model S sedans.

Green Mountain Coffee Roasters Inc. added 28 percent to $76.04, the highest since October 2011. The maker of Keurig single-serve brewers raised its profit forecast on higher K-Cup sales and announced an expanded partnership with Starbucks Corp.

Groupon Inc. surged 11 percent to $6.23. The daily-deals website posted first-quarter revenue that exceeded estimates as sales through its mobile applications increased. The company’s net loss was 1 cent a share, while analysts had predicted a loss of 2 cents.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

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

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