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U.S. Stocks Retreat as Fed Plans More Cuts in Stimulus

By Nick Taborek
January 29, 2014 4:33 PM EST 74 Comments
Traders work on the floor of the New York Stock Exchange in New York.
Photographer: Scott Eells/Bloomberg
Traders work on the floor of the New York Stock Exchange in New York.

U.S. stocks sank, dragging benchmark indexes to the lowest levels since November, amid disappointing earnings forecasts and the Federal Reserve’s plan to reduce stimulus even amid turmoil in emerging markets.

Yahoo! Inc. slumped 8.7 percent, the most since July 2009, as its sales forecast signaled slowing growth. Boeing Co. retreated 5.3 percent for its worst drop in more than two years after its 2014 profit forecast trailed analysts’ estimates amid a slowing pace of jet orders. Dow Chemical (DOW) Co. jumped 3.9 percent after stepping up its dividend and share-buyback plan.

The Standard & Poor’s 500 Index lost 1 percent to 1,774.20 at 4 p.m. in New York, wiping out yesterday’s advance and sending the benchmark gauge lower for the fourth time in five days. The Dow Jones Industrial Average dropped 189.77 points, or 1.2 percent, to 15,738.79 today. About 7.8 billion shares changed hands in the U.S., 26 percent above the three-month average.

“The emerging markets have been weak now for quite some time, but the drama has heightened really in the past few days,” Erik Davidson, the San Francisco-based deputy chief investment officer for Wells Fargo Private Bank, which oversees $170 billion, said by phone. “It would be out of sorts for the Fed to react on such a short-term news development.”

Stocks extended early losses as Fed policy makers pressed on with another $10 billion reduction in the monthly bond purchases intended to speed a recovery from the worst recession since the Great Depression. Some officials have expressed concern that the Fed’s record $4.1 trillion balance sheet could help create asset-price bubbles.

‘Further Improvement’

“Labor market indicators were mixed but on balance showed further improvement,” the Federal Open Market Committee said today in a statement following a two-day meeting in Washington that was the last for Chairman Ben Bernanke, who will be succeeded by Vice Chairman Janet Yellen on Feb. 1. “The unemployment rate declined but remains elevated.”

The Fed this month began paring the purchases by $10 billion a month to $75 billion. The reductions announced today will reduce the pace to $65 billion.

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Three rounds of Fed monetary stimulus helped the S&P 500 rise as much as 173 percent from a 12-year low in 2009. The U.S. stock benchmark rallied 30 percent last year, the most since 1997. While the index reached an all-time high of 1,848.38 on Jan. 15, it has slumped 4 percent since then.

Emerging Markets

Speculation about Fed policy has caused turmoil in emerging market currencies. The Turkish lira depreciated as much as 2.4 percent today, even after the country more than doubled its key interest rate to stem capital outflows. South Africa’s rand also weakened as an unexpected increase in its benchmark interest rate failed to reassure investors.

Facebook Inc., Boeing and Dow Chemical are among the 25 S&P 500 companies reporting earnings today.

About 77 percent of the S&P 500 companies that have posted earnings this season beat analysts’ projections. Profit at S&P 500 companies probably rose 6.6 percent in the fourth quarter of 2013, and sales increased 2.6 percent, analysts’ estimates compiled by Bloomberg show.

The Chicago Board Options Exchange Volatility Index rose 9.8 percent today to 17.35. The gauge of S&P 500 options known as the VIX has gained 26 percent this year.

Nine of the 10 main groups in the S&P 500 retreated today as consumer staples companies fell 1.8 percent to pace losses. Raw-materials suppliers advanced 0.5 percent for the only gain as DuPont Co. rallied 1.9 percent, the most in the Dow.

Yahoo, Boeing

Yahoo slumped 8.7 percent to $34.89. The company forecast first-quarter sales that signaled slowing growth amid competition from Google Inc. and Facebook. Yahoo’s fourth-quarter net income rose 28 percent to $348.2 million, while net sales slipped to $1.2 billion from $1.22 billion a year ago, the company said.

Boeing slumped 5.3 percent, the most since August 2011, to $129.78. The world’s largest planemaker forecast a profit for 2014 that fell short of analysts’ estimates as the pace of its jet orders slows after the second-highest year in 2013.

AT&T Inc. retreated 1.2 percent to $33.31. The second-largest U.S. wireless carrier forecast 2014 earnings-per-share will grow at a “mid-single-digit” rate, compared with analysts’ estimates for an increase of 7 percent.

McCormick & Co. slid 6.2 percent to $65.30. The manufacturer of spices and flavorings forecast profit below analysts’ estimates, citing a higher tax rate and slower growth in its U.S. business.

Dow Chemical jumped 3.9 percent to $44.73. The largest U.S. chemical maker expanded its 2014 buyback plan to $4.5 billion from $1.5 billion, while raising the first-quarter dividend 16 percent to 37 cents. Fourth-quarter profit excluding one-time items was 65 cents, topping the 43-cent average of 20 estimates compiled by Bloomberg.

DuPont Rebounds

DuPont climbed 1.9 percent to $60.71 after a 1.1 percent decline in the previous session. The biggest U.S. chemical maker by market value said yesterday it will repurchase $5 billion of its shares after posting fourth-quarter earnings that exceeded analysts’ estimates.

Medivation Inc. gained 11 percent to $84.29 after saying its prostate-cancer drug Xtandi slowed the disease in a study. The treatment slowed or stopped cancer growth in 59 percent of patients not on chemotherapy compared with 5 percent of those taking a placebo.

To contact the reporter on this story: Nick Taborek in New York at ntaborek@bloomberg.net

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

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