US Stocks Fall Hard as Better Data, Fed Remarks Boost Rate Bets

New York (May 26)  US stocks sharply fell the most in three weeks, as better-than-forecast economic data and comments by Federal Reserve officials bolstered bets for an interest-rate increase this year.

Energy and raw-material companies retreated as the dollar jumped, while Apple Inc. and Intel Corp. paced a drop in technology shares. Hewlett-Packard Co. decreased 3.9 percent, while Google Inc. lost 2 percent. Time Warner Cable Inc. added 7.8 percent after Charter Communications Inc. agreed to buy the cable provider for about $55 billion in cash and stock. Cablevision Systems Corp. climbed 5 percent.

The Standard & Poor’s 500 Index declined 1.2 percent to 2,100.41 at 2:00 p.m. in New York, after a third straight weekly advance. The Dow Jones Industrial Average sank 232.49 points, or 1.3 percent, to 17,999.53. The Dow ended a six-session stretch without a 100-point intraday swing, the longest in almost a year. The Index is near its average price during the past 50 days. The Nasdaq Composite Index lost 1.3 percent.

“The looming Fed change is always out there,” said Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2 billion. “You have a couple of items that could be considered good, things are looking better, the dollar is strong, basically it’s working against the market at the moment.”

A better-than-forecast increase in capital goods orders and new-home sales came after Federal Reserve Chair Janet Yellen indicated the central bank will raise borrowing costs this year if the economy improves as she expects. Fed Bank of Cleveland President Loretta Mester echoed her comments on Monday, saying the U.S. economy is close to the point where it can support higher rates.

Fischer Comments

Fed Vice Chairman Stanley Fischer said central bankers are weighing the risk of raising them prematurely against the danger of having to play catch-up if they wait too long. He also said policy makers will consider global growth as they begin to raise interest rates, and they could increase them more gradually should the world economy falter.

Economists expect the Fed to increase rates in September, according to a Bloomberg survey. Purchases of new homes rose more than projected in April, and a separate report showed home prices increased at a faster pace than forecast in the year through March. A gauge on May consumer confidence also advanced more than estimated.

“The market is kind of striking this in-between, wanting better economic data but then the flip side meaning the Fed is that much sooner to raising rates,” said Walter Todd, who oversees about $1 billion as chief investment officer for Greenwood, South Carolina-based Greenwood Capital. “I’m fine with that, with seeing better economic data and dealing with the implications.”

VIX Jumps

While U.S. stocks had their slowest week of trading since New Year’s and the tightest range for equities in six months, the S&P 500 reached a fresh record on May 21. The index climbed 0.2 percent last week to mark its longest weekly winning streak since February. Equity markets were closed on Monday for the Memorial Day holiday.

The Chicago Board Options Exchange Volatility Index jumped 20 percent to 14.55 Tuesday, the most this year. The gauge, known as the VIX, closed Friday with its second straight weekly decline. All 10 of the S&P 500’s main groups fell, with energy, raw materials and technology shares losing more than 1.4 percent.

First Solar Inc. slumped 6.3 percent, the most in four months, after the solar module maker was cut to the equivalent of a sell by RBC Capital Markets. Apple, International Business Machines Corp. and Intel all fell at least 1.4 percent as tech companies in the benchmark index retreated 1.7 percent.

Commodities Sag

Tech hardware and equipment companies lost 1.8 percent, the most of 24 industry groups in the S&P 500. Hewlett-Packard Co. led the decline, down 3.9 percent, the most in three months. Seagate Technology Plc and Juniper Networks Inc. dropped more than 2.2 percent.

Dow Chemical Co. and Freeport McMoRan Inc. retreated at least 1.6 percent as raw-material producers fell 1.4 percent, the most in three weeks. A Bloomberg measure on the dollar reached its highest level in a month, curbing the appeal of commodities priced in the U.S. currency.

Chevron Corp. and ConocoPhillips lost more than 1.7 percent to weigh on the energy group as oil sank. Transocean Ltd. and Valero Energy Corp. decreased at least 2.4 percent as energy shares in the benchmark hit their lowest level in seven weeks.

Airlines, Banks

Coal stocks were among the biggest losers after the protracted slump in demand for the fossil fuel led to a rash of layoffs last week. Alpha Natural Resources Inc. fell 10 percent to a record low after announcing plans Friday to idle a West Virginia mine and fire 439 workers. Peabody Energy Corp. also dropped to an all-time low, down 5.5 percent, while Consol Energy Inc. lost 4.9 percent.

Airlines led transportation shares lower, even amid the decline in crude prices. Southwest Airlines Co., American Airlines Group Inc. and Delta Air Lines Inc. slipped at least 1.6 percent.

JPMorgan Chase & Co. and Bank of America Corp. slid more than 1.4 percent as financial companies in the S&P 500 fell for a fourth session, the longest streak in two months. Citigroup Inc. and KeyCorp declined at least 1 percent.

Source: Bloomberg