Tag Archives: Federal Reserve System

U.S. Stocks Drop as Budget Deal Spurs Bets on Fed Cuts

According to Bloomberg,

U.S. stocks fell a second day, after an all-time high for the Standard & Poor’s 500 Index, as a Congressional budget accord fueled speculation that the Federal Reserve could trim stimulus next week.

Cisco Systems Inc. dropped 2.2 percent after losing a European Union court bid to overturn approval of Microsoft Corp.’s 2011 takeover of Skype Technologies SA. Laboratory Corp. of America Holdings plunged 10 percent after issuing a profit forecast below analysts’s estimates. MasterCard Inc. (MA) climbed 3.8 percent after saying its board of directors approved an 83 percent dividend increase and a 10-for-1 stock split.

The S&P 500 fell 0.7 percent to 1,790.90 at 11:58 a.m. in New York. The Dow Jones Industrial Average dropped 75.48 points, or 0.5 percent, to 15,897.65. Trading in S&P 500 stocks was in line with the 30-day average at this time of day.

“We’ve moved much closer for the Fed to taper in December,” Jeffrey Kleintop, chief market strategist at LPL Financial LLC in Boston, said in a telephone interview. “Markets are increasing their views that we are a week or so away from tapering because of improving economic data and clearing the hurdle for a budget deal. This deal is great, it’s a positive, but also a negative because it could prompt the Fed to taper sooner.”

The S&P 500 (SPX) fell 0.3 percent yesterday after reaching a record 1,808.37 the day before. Fed stimulus has helped propel the benchmark gauge higher by as much as 167 percent from its bear-market low in 2009. The index has rallied 26 percent this year and is challenging 2003 for the biggest annual jump since 1998.

Budget Deal

Investors are considering when the central bank, which meets next week, may reduce the pace of its monthly bond buying. Fed officials cited the drag from fiscal policy in their Oct. 30 statement and Jeffrey Lacker, president of the Richmond Fed, said in a speech Dec. 9 that budget uncertainty is weighing on business investment decisions.

Congressional negotiators yesterday agreed to a budget deal that would ease automatic spending cuts by about $60 billion over two years and will reduce the deficit by $20 billion to $23 billion. The budget compromise, which needs to pass both chambers of Congress, doesn’t raise the U.S. debt limit, setting up another potential fiscal showdown after February.

“The budget deal itself is at best a signal that we won’t shut the government down at the start of the new year,” Alexander Friedman, chief investment officer at UBS AG’s wealth-management unit, told Anna Edwards on Bloomberg Television. “It’s a low base that we’re declaring victory from. The key message for 2014 is the real economy is getting better. For investors however, it’s probably not going to be the same sugar high we’ve seen for the last five years.”

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U.S. Stocks Rise as Investors Weigh Timing of Fed Cuts

According to Bloomberg,

U.S. stocks rose, sending the Standard & Poor’s 500 Index above its record close, as investors weighed the timing of any cuts to Federal Reserve monetary support amid budget negotiations in Washington.

Sysco Corp. jumped 12 percent after the food distributor agreed to buy closely held US Foods in a deal valued at about $3.5 billion. Gilead Sciences Inc. advanced 1.4 percent after getting approval for a hepatitis C pill that may generate more than $6 billion in annual sales. McDonald’s Corp. (MCD) dropped 0.9 percent after November sales missed analysts’ estimates.

The S&P 500 rose 0.3 percent to 1,810.76 at 1:30 p.m. in New York. The Dow Jones Industrial Average added 30.89 points, or 0.2 percent, to 16,051.09. Trading in S&P 500 stocks was 6 percent below the 30-day average at this time of day.

Slideshow: The Best and Worst Investments of 2013

“People are getting more comfortable with the idea of tapering and the concept that the reason for the taper is that the economy is getting stronger,” Walter Todd, who oversees about $950 million as chief investment officer of Greenwood Capital Associates LLC in Greenwood, South Carolina, said by phone. “At the end of the day that’s a good thing not a bad thing. For the next week it’s just going to be speculation around the timing.”

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Jobless Reports Fuel Fed Bets, U.S. Stocks Drop After GDP Jobless Reports Fuel Fed Bets

According to Bloomberg,

(Corrects Dollar General stock price in 17th paragraph.)

U.S. stock-index futures fell, signaling equities will extend a four-day slide, after data showing faster-than-forecast economic growth fueled speculation the Federal Reserve will curb stimulus spending.

Aeropostale Inc. lost 3.8 percent as the retailer’s fourth-quarter loss forecast was wider than estimated. Apple Inc. rose 1.4 percent as China Mobile Ltd. moved closer to offering its 759 million subscribers iPhones. General Growth Properties Inc. added 4.5 percent as Standard & Poor’s said it will add the mall owner to its benchmark index this month.

S&P 500 Index (SPX) futures expiring this month fell 0.3 percent to 1,787.20 at 9:12 a.m. in New York. Dow Jones Industrial Average contracts lost 39 points, or 0.3 percent, to 15,847 today.

“The numbers today pave the way for the Fed” to cut stimulus, Matthew Kaufler, a portfolio manager at Federated Investors Inc. in Rochester, New York, said by phone. His firm oversees $363.8 billion. “There’s angst in the short run, but I think it’s only positive in the long run that the Fed begin to taper and extricate itself from being the ultimate market maker.”

The S&P 500 has surged 26 percent this year, challenging 2003 for the biggest annual gain in the last 15 years, as the Fed refrained from reducing its monthly bond purchases and corporate earnings surpassed estimates.

Stimulus Bets

The central bank has said it will start slowing the pace of stimulus if the economy improves in line with its forecasts. Policy makers, who next meet Dec. 17-18, will probably wait until the March 18-19 Federal Open Market Committee session before reducing monthly bond purchases to $70 billion from $85 billion, according to the median estimate in Bloomberg’s latest survey of economists conducted on Nov. 8.

The U.S. economy expanded in the third quarter at a faster pace than initially reported, led by the biggest increase in inventories since early 1998. Consumer spending slowed. Gross domestic product climbed at a 3.6 percent annualized rate, up from an initial estimate of 2.8 percent and the strongest since the first quarter of 2012.

Separate data showed applications for U.S. employment benefits unexpectedly fell last week to the lowest level in more than two months. Jobless claims decreased 23,000 to 298,000 in the week ended Nov. 30, the Labor Department said.

Data tomorrow may show the unemployment rate fell to 7.2 percent, matching the lowest level since 2008.

Fed Bank of Atlanta President Dennis Lockhart, a backer of record stimulus, said today the central bank when considering tapering should announce a total limit on purchases or a timetable for dialing down the program.

‘Transition Process’

“If and when the FOMC arrives at a decision to wind down asset purchases, it’s my view that it will be helpful to the transition process to provide as much certainty as possible about how this will be done,” Lockhart said in a speech in Florida.

The S&P 500 has retreated 0.8 percent in the past four sessions, dropping to a two-week low after closing at a record on Nov. 27. The index fluctuated yesterday before closing lower by 0.1 percent, as optimism that lawmakers in Washington were close to a budget deal offset better-than-forecast jobs data that fueled stimulus-tapering concerns.

The gauge’s rally this year has pushed valuations higher, with the equity benchmark trading for about 16.1 times its constituents’ projected earnings, up 23 percent from the beginning of 2013 when it traded at 13.1 times projected profit.

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Retail Reports: U.S. Stocks Drop for Third Day Amid Auto

According to Bloomberg,

U.S. stocks declined for a third day, as investors assessed reports on car and retail sales before economic data this week that may offer clues on when the Federal Reserve will reduce stimulus.

Ford Motor Co. lost 2.9 percent, as carmaker stocks slipped amid November sales reports. Amazon.com Inc. (AMZN) slid 2 percent to pace declines among retailers even as online Cyber Monday sales surged to a record. Krispy Kreme (KKD) Doughnuts Inc. plunged 20 percent after quarterly revenue missed analysts’ estimates. Apple Inc. (AAPL) rose 2.7 percent to the highest in a year after buying data-analytics firm Topsy Labs Inc.

The Standard & Poor’s 500 Index declined 0.3 percent to 1,795.15 at 4 p.m. in New York. The Dow Jones Industrial Average dropped 94.15 points, or 0.6 percent, to 15,914.62, its first close below 16,000 since Nov. 20. About 6.3 billion shares changed hands on U.S. exchanges, 3.8 percent above the three-month average.

“It’s really a mixed picture right now,” Dan Veru, the chief investment officer who helps oversee $4.5 billion at Palisade Capital Management LLC, said in a phone interview from Fort Lee, New Jersey. “In the absence of any bigger data, investors are grasping for these little bits of micro data in trying to develop a conclusion. Any market that’s appreciated as much as the stock market has this year is going to be vulnerable to sell-offs.”

Economic Data

U.S. stocks fell yesterday as data showing manufacturing unexpectedly rose last month bolstered the case for the Fed to start curbing stimulus. Central-bank policy makers meet Dec. 17-18 after minutes of their last meeting in October showed officials may reduce the $85 billion in monthly bond buys should the economy improve as anticipated.

The Commerce Department will release data tomorrow on new home sales and the central bank will publish its Beige Book, which provides policy makers anecdotal accounts of business activity from the Fed districts. Reports on third-quarter gross domestic product and November non-farm payrolls are also due this week.

“There’s trepidation building with the employment numbers coming on Friday,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion, said by phone. “There’s nervousness that maybe the Fed takes a more hawkish tone at its December meeting if the jobs numbers are stronger than consensus estimates.”

Valuations Rise

The S&P 500 has added 26 percent this year, challenging 2003 for the best annual gain in 15 years, after the Fed refrained from trimming its monthly bond purchases and corporate earnings have surpassed estimates.

The rally has pushed valuations higher, with the gauge trading for about 16.9 times its companies’ reported earnings, up 19 percent from the beginning of the year when it traded at 14.2 times profit.

“For the coming months, markets will be hesitating, and we expect volatility amid expectations of Fed tapering,” Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg, said by telephone. “The rebound in equity markets has been quite impressive, particularly in the U.S., so we expect some pause.”

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U.S. Stocks Fluctuate Amid Confidence, Housing Reports

According to Bloomberg,

U.S. stocks fluctuated, after the Standard & Poor’s 500 Index fell from a record yesterday, as investors assessed reports showing higher home prices and an unexpected drop in consumer confidence.

Lennar Corp. and PulteGroup Inc. climbed at least 3.5 percent, leading a rally among homebuilders. Tiffany & Co. jumped 7.9 percent after profit topped analysts’ estimates and the jeweler boosted its forecast. Jos. A. Bank Clothiers Inc. surged 9.2 percent after Men’s Wearhouse Inc. offered to buy the apparel company for about $1.54 billion. Take-Two Interactive Software Inc. fell 3.5 percent as the gaming company said it bought back all 12 million shares held by Icahn Group.

The S&P 500 gained 0.1 percent to 1,804.59 at 11:29 a.m. in New York after falling as much as 0.1 percent earlier. The Dow Jones Industrial Average rose 22.99 points, or 0.1 percent, to 16,095.53. Trading in S&P 500 stocks was 18 percent below the 30-day average at this time of the day.

“We’re tending to move in a positive direction,” Kate Warne, a St. Louis-based investment strategist at Edward Jones & Co., said by phone. Her firm oversees $746 billion. “We’re getting data in a sweet spot. It’s positive but not so positive as to raise worries about the Fed moving sooner and yet it continues to show that the economy is gaining some traction.”

The S&P 500 fell 0.1 percent yesterday after closing Nov. 22 for the first time above 1,800 to cap seven straight weeks of gains.

Fed Stimulus

Home Prices See Highest Gains Since February 2006

Three rounds of Federal Reserve bond purchases have helped push the S&P 500 up 166 percent from a bear-market low in 2009. Four out of five investors expect the Fed to delay a decision to begin reducing the stimulus until March 2014 or later, according to a Bloomberg Global Poll on Nov. 19.

Policy makers have been scrutinizing data to determine whether the economy is strong enough to withstand a reduction in their $85 billion a month in bond purchases.

More applications for home construction were issued in October than at any time in the past five years, figures from the Commerce Department showed today. The agency postponed publishing housing-starts data, due today, to Dec. 18 because of a lapse in funding after a 16-day partial government shutdown last month.

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U.S. Stocks Fluctuate Amid Iran Deal After Setting Record

According to Bloomberg,

U.S. stocks fluctuated after benchmark indexes closed at all-time highs and Iran agreed to limit its nuclear program.

Alcoa Inc. climbed 4.6 percent and Caterpillar Inc. rose 2.3 percent after analysts recommended buying the shares. An index of airlines reached an almost seven-year high as crude slid. Qualcomm Inc. lost 2.4 percent as the company said a Chinese agency started a probe related to an anti-monopoly law. Homebuilders retreated 1.3 percent as a group as the number of contracts Americans signed to buy previously-owned homes unexpectedly fell.

The S&P 500 rose 0.1 percent to 1,806.56 at 11:34 a.m. in New York, erasing an earlier decline of as much as 0.1 percent. The gauge closed for the first time above 1,800 on Nov. 22. The Dow Jones Industrial Average added 36.89 points, or 0.2 percent, to 16,101.66. Trading in S&P 500 stocks was 6.9 percent below the 30-day average during this time of the day.

“The market is not necessarily over-extended, but probably moderately rich,” Cam Albright, director of asset allocation at the investment advisory unit of Wilmington Trust, said by phone from Wilmington. The firm oversees about $79 billion. “It’s probably difficult to envision this market getting a lot more upside unless it has this continued success on earnings and economic growth. The deal with Iran takes some of the risk premium out of the marketplace for the moment at least.”

NYSE (Bloomberg)
NYSE (Bloomberg)

Iran Accord

Iran agreed yesterday to curtail nuclear activities in return for easing of some sanctions on oil, auto parts, gold and precious metals, an accord that broke a decade-long deadlock.

The S&P 500 has rallied 27 percent this year as the Federal Reserve continued to buy $85 billion of bonds a month to stimulate economic growth. If the gauge holds on to its gains, it will mark the best year for U.S. equities since 1998.

The index is trading for about 17 times its companies’ reported earnings. While the valuation reached the highest level since May 2010, it’s still below the multiples at the market’s two previous peaks, when the ratio reached 17.5 in October 2007 and 31 in March 2000, data compiled by Bloomberg show.

Four out of five investors expect the Fed to delay a decision to begin reducing the stimulus until March 2014 or later, according to the Bloomberg Global Poll of investors, traders and analysts who are subscribers. Just 5 percent are looking for a move at its Dec. 17-18 meeting, the Nov. 19 poll showed.

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Paulson Said to Inform Clients He Won’t Add More to Gold

According to Bloomberg,

Billionaire John Paulson, the best-known gold bull since he started wagering on bullion more than three years ago, is backing away from his bet.

Paulson told clients at his firm’s annual meeting Nov. 20 that he personally wouldn’t invest more money in his gold fund because it’s not clear when inflation will accelerate, according to a person familiar with the matter. The hedge-fund manager, who has been betting that bullion would rally as a hedge against inflation and as recently as last year told clients that gold was his best long-term bet, has lost 63 percent year-to-date in the PFR Gold Fund, said the person, who was briefed on the returns and asked not to be identified because the information is private.

Paulson, 57, started his foray into gold in early 2009, betting that bullion would rise as governments printed money to revive their economies following the 2008 financial crisis. Gold-related securities helped drive losses for the firm in 2012 as mining company stocks fell. Paulson & Co.’s main strategies have gained this year on bets in mergers, defaulted securities, convertible bonds and telecommunications, energy, insurance and asset-management companies.

The fund, which has shrunk to $370 million — with most of that John Paulson’s own money — from $1 billion at the end of 2012, fell 1.2 percent in October, the person said. The hedge-fund firm will maintain the fund’s positions in gold stocks and let options related to bullion expire, Paulson said at the meeting in Paulson & Co.’s New York office, according to the person.

Hedge-fund Manager John Paulson (Bloomberg)

Hedge-fund Manager John Paulson (Bloomberg)

Armel Leslie, a spokesman for $19 billion Paulson & Co. with WalekPeppercomm, declined to comment on the meeting and fund returns.

Bullion’s Slump

Gold is heading for its first annual drop in 13 years as some investors lost faith in the metal as a store of value, fueled by concern that expected reductions in $85 billion of monthly bond buying by the U.S. Federal Reserve will ease the risk of accelerating inflation. Billionaires George Soros and Daniel Loeb sold their entire positions in the SPDR Gold Trust exchange-traded fund in the second quarter, according to regulatory filings. Inflation expectations as measured by the break-even rate for five-year Treasury Inflation Protected Securities fell 12 percent this year.

Bullion has slumped 26 percent this year to $1,246.30 an ounce at 3:21 p.m. in London and reached $1,236.88 yesterday, the lowest since July 9.

Hedge funds and other money managers have cut their net-long positions in gold to 55,456 futures and options as of Nov. 12, according to the latest data from the U.S. Commodity Futures Trading Commission. The holdings are down 48 percent this year.

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