U.S. Stocks Fall After 2-Day Rally Amid Economy Concerns

New York (Jan 11)  U.S. stocks fell, after a two-day rally in the Standard & Poor’s 500 Index (SPX), as concern grew that Europe’s stimulus plan might not be sufficient and American wages fell before the start of corporate earnings season.

The Standard & Poor’s 500 Index (VIX) fell 0.8 percent to 2,044.81 at 4 p.m. in New York. The loss sent the benchmark index 0.7 percent lower for the week. The Dow Jones Industrial Average dropped 170.5 points, or 1 percent, to 17,737.37. About 6.3 billion shares traded hands on U.S. exchanges, 10 percent below the three-month average.

“The laundry list of investor worries is reasserting itself here -- global growth concerns, how the ECB responds to what’s going on and the strong dollar,” Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama, said in a phone interview. “We were looking for wage growth to increase, and the weaker-than-expected number was disappointing.”

Today’s retreat follows a 3 percent rebound in the S&P 500 over two days on speculation that the Federal Reserve will support the U.S. economy even as it shows signs of strength. The benchmark index had recovered more than two thirds of its losses after tumbling 4.2 percent over five days as crude oil plunged below $48 a barrel for the first time since 2009.

Stocks briefly rose at the start of trading as data showed U.S. employment rose more than forecast in December and the jobless rate declined to 5.6 percent, wrapping up the best year for the labor market since 1999.

The early gain quickly melted away as investors focused on an unexpected decline in earnings in the Labor Department report. Average hourly earnings for all employees dropped by 0.2 percent, the biggest since comparable records began in 2006, to $24.57 from the prior month.

Wage Gap

“The gap is still in the wage side,” Jim Dunigan, chief investment officer at PNC Bank NA in Philadelphia, which oversees $130 billion, said by phone. “Increasing wages would give some confidence that workers making more money would spur additional demand and that the recovery can continue to sustain itself. When wages are stagnant it’s hard to convince yourself it’ll spur more demand.”

The U.S. report comes amid cooling markets that stretch from Europe to China. S&P 500 futures fell earlier today after a person familiar with the matter said European Central Bank staff presented policy makers with models for buying as much as 500 billion euros ($591 billion) of investment-grade assets.

A 500 billion-euro purchase program would take the ECB halfway toward its goal of boosting its balance sheet to avert a deflationary spiral in the euro area. Negative euro-area inflation this week bolstered the case for the ECB to start quantitative easing at its Jan. 22 meeting.

Policy makers disagree about whether action is required, with some arguing deflation risks have increased and others pointing to the stimulating effects of lower prices on the economy.

Fed Rates

In the U.S., Fed minutes on Dec. 7 signaled no change in interest-rate policy. Most central bank officials agreed their new policy guidance means they are unlikely to raise interest rates before late April and a number expressed concern inflation could remain too low.

Fed Bank of Atlanta President Dennis Lockhart said today’s strong jobs report is no reason to speed up the timing of an interest-rate increase that he sees occurring in the middle of the year or later.

“I don’t see a reason yet to accelerate my assumption of when a policy move might be appropriate,” Lockhart, who votes on monetary policy this year, said in a telephone interview from Atlanta. At the same time, “clearly this added to accumulated progress with very healthy numbers.”

Earlier, Boston Fed President Eric Rosengren said low inflation will allow the central bank to move gradually when it begins raising interest rates. Minneapolis Fed President Narayana Kocherlakota said higher rates would hinder a recovery in inflation.

Earnings Season

Company earnings reports will show the S&P 500’s earnings per share grew 2 percent in the fourth quarter of 2014, analysts tracked by Bloomberg estimate. Companies reporting fourth-quarter results next week include Alcoa Inc., JPMorgan Chase & Co., Intel Corp. and Schlumberger Ltd.

The Chicago Board Options Exchange Volatility Index rose 3.2 percent to 17.55, after a two-day decline of 19 percent.

All 10 major groups in the S&P 500 retreated. Financial, consumer-discretionary and industrial shares had the biggest losses, declining more than 1 percent.

Stock Movers

Energy shares sank 0.8 percent to cap a third weekly decline as oil closed at a more than five-year low.

Bed Bath & Beyond Inc. declined 6.8 percent for the biggest loss in the S&P 500 after saying yearly net sales will rise as much as 3.6 percent, compared with an earlier estimate of 3.9 percent. Comparable sales in the third quarter gained 1.7 percent, compared with analyst estimates of 2.8 percent.

Starbucks Corp. slipped 3.3 percent after the world’s largest coffee-shop chain said Chief Operating Officer Troy Alstead will go on leave in March.

Macy’s Inc. fell 2.8 percent after saying it will book as much as $110 million of charges in the fourth quarter related to store closings, restructuring plans, and asset impairments.

Cisco Systems Inc. jumped 1 percent for the best performance in the Dow.

Wynn Resorts Ltd. added 1.3 percent after Morgan Stanley upgraded its rating on the casino and hotel operator to overweight.

Source: Bloomberg