US Stocks Pare Decline Amid Data as Fed Seen Moving Cautiously

New York (May 29)  Fed Bank of St. Louis President James Bullard warned Thursday that keeping rates near zero risks inflating asset-price bubbles, saying officials should raise borrowing costs this year as the economy improves.~~U.S. stocks pared an earlier decline as weaker-than-forecast May economic data boosted speculation that the Federal Reserve will proceed cautiously in raising interest rates.

Transportation companies dropped for the fourth time in five sessions as railroads extended declines, and financial shares fell after two days of gains. Humana Inc. jumped 15 percent after the Wall Street Journal reported that the company hired Goldman Sachs Group Inc. to sell itself. Altera Corp. added 4.9 percent as the New York Post reported Intel Corp. is nearing a deal to buy the company for about $15 billion.

The Standard & Poor’s 500 Index slipped 0.2 percent to 2,116.83 at 1:30 p.m. in New York, after earlier falling as much as 0.8 percent. The benchmark is poised for its first weekly drop in four. The Dow Jones Industrial Average fell 49.31 points, or 0.3 percent, to 18,076.81, and the Nasdaq Composite Index was little changed.

“GDP is kind of an old story -- we already knew it contracted, but the Chicago PMI number came in unexpectedly low,” said Kevin Caron, a market strategist and portfolio manager who helps oversee $170 billion at Stifel Nicolaus & Co. in Florham Park, New Jersey. “It could be that the market was hoping for a better number, and didn’t get the support it wanted. There’s conflicting data on the strength of the economy.”

A gauge today showed Chicago-area manufacturing activity contracted this month to its lowest level since February, raising concerns about the vitality of a rebound from a weak first quarter. Data earlier also showed gross domestic product in the U.S. shrank, amid harsh winter weather, a strong dollar and delays at ports. A separate report said consumer sentiment in May fell the most since the end of 2012.

Soft Data

“The Chicago PMI headline was exceedingly soft,” said Mark Luschini, chief investment strategist in Philadelphia at Janney Capital Management LLC, which oversees about $68 billion. “Investors are chalking up softer economic data to a lot of anomalous factors in the first quarter, but this was a May read. That collectively is weighing on the markets at a time when there’s no impetus to buy.”

The S&P500 has still advanced 1.5 percent this month, closing at a fresh record last week. The Nasdaq Composite Index and the Dow also rose to all-time highs in May. Along with readings on the economy, investors today have an eye on Europe as stocks there declined for a second day on concern Greece won’t reach an agreement with creditors in time for a debt repayment.

Temporary Setback

Economists forecast growth will rebound enough from the first-quarter slowdown for the Federal Reserve to increase interest rates in September. Fed officials are among those who believe the setback in growth will be temporary, helping explain why they are considering raising rates this year.

Source: Bloomberg