(c) 2013, Bloomberg News.
(c) 2013, Bloomberg News.
NEW YORK — U.S. stocks fell from record highs as investors weighed data showing stronger-than-forecast growth in service industries and a Federal Reserve official's comment that the central bank is closer to slowing its monthly bond buying.
Homebuilders fell 1.9 percent as a group, with PulteGroup and D.R. Horton dropping more than 2 percent. Qualcomm retreated 0.8 percent as Piper Jaffray cut its rating on the company. Tyson Foods rose 4.1 percent after reporting third-quarter results that beat estimates.
The Standard & Poor's 500 Index slipped 0.1 percent to 1,707.14 at 4 p.m. in New York. The Dow Jones Industrial Average lost 46.23 points, or 0.3 percent, to 15,612.13. About 4.6 billion shares changed hands on U.S. exchanges Monday, 27 percent below the three-month average.
"The comments today and the data today are not sufficient to say the Fed is really going to ramp down more aggressively," Walter Todd, who helps oversee $950 million as the chief investment officer of Greenwood Capital in Greenwood, S.C., said by phone. "More than anything it's just people taking a break, catching their breath after a very aggressive run in the market."
Stocks rallied 1.1 percent last week, sending the S&P 500 above 1,700 for the first time, as central banks vowed to maintain stimulus and data showed economic growth beat projections in the second quarter. The equity gauge has advanced 20 percent this year and is trading at 15.5 times estimated earnings, compared with an average of 13.9 over the last five years, data compiled by Bloomberg showed.
Fed Bank of Dallas President Richard Fisher, one of the most vocal critics of quantitative easing, warned investors not to rely on the central bank's $85 billion in monthly bond purchases.
"Financial markets may have become too accustomed to what some have depicted as a Fed 'put,'" or the idea that the central bank will loosen credit after a market decline, Fisher said in a speech in Portland, Oregon. "Some have come to expect the Fed to keep the markets levitating indefinitely. This distorts the pricing of financial assets" and can lead to "serious misallocation of capital."
Central bank policy makers have been debating the pace and timing of any cuts in the monetary stimulus that has helped propel the S&P 500 up more than 150 percent from its bear-market low in 2009. The Fed said last week persistently low inflation could hamper the economy and pledged to keep buying bonds every month. Tapering of the pace of asset purchases may begin in September, according to a growing number of economists surveyed by Bloomberg from July 18 to July 22.
The Institute for Supply Management's non-manufacturing index increased to 56 in July from 52.2 the prior month, a report from the Tempe, Ariz.-based group showed Monday. The median forecast in a Bloomberg survey of economists called for a gain to 53.1. Readings higher than 50 indicate growth in the industries that make up almost 90 percent of the economy.
Better-than-expected corporate earnings have also bolstered stocks in recent weeks. Of the 393 companies in the S&P 500 that have reported results for the second quarter, 74 percent have surpassed forecasts, according to data compiled by Bloomberg. Analysts projected companies on the gauge will increase their third-quarter earnings per share by 3.3 percent from a year earlier, and their profit in the fourth quarter by 9.9 percent, according to estimates compiled by Bloomberg.
Eight of 10 main industries in the S&P 500 fell Monday, with utility and industrial shares losing at least 0.4 percent to lead declines. Technology and consumer-staples shares were the only groups to advance.
The Chicago Board Options Exchange Volatility Index, or VIX, fell 1.2 percent Monday to 11.84. The equity volatility gauge reached its 2013 peak in June and has since fallen 42 percent.
"The market has put on such a powerful move this year that regardless of the numbers that come out we're due for some type of pullback, even if it's brief in duration and mild in severity," Matthew Kaufler, a portfolio manager at Federated Investors in Rochester, N.Y., said by phone. His firm oversees $363.8 billion.
Homebuilders fell 1.9 percent as a group in the S&P 500, with all 11 of its members declining. Robert Wetenhall, an analyst at RBC Capital Markets, said in a note that decelerating orders and potentially higher interest rates may continue to hurt investor sentiment. PulteGroup slipped 2.1 percent to $16.86 and D.R. Horton lost 2 percent to $19.97.
Qualcomm dropped 0.8 percent to $66.25 on Monday. Piper Jaffray cut its rating on the largest seller of semiconductors for mobile phones to neutral from overweight, meaning that investors should not buy more of the shares. The brokerage cited weaker demand for the parts used in the most expensive smartphones.
Fossil Group lost 6 percent to $107.42 for the biggest decline in the S&P 500. The fashion accessories designer declined after an analyst with Barclays downgraded the shares to underweight from equalweight.
J.C. Penney declined 3.2 percent to $13.82, falling for a fifth straight session to the lowest level since February 2001. The stock has tumbled 16 percent in the past week.
The department-store chain, seeking to rebound from its worst sales year in more than two decades, announced Monday that it hired Debra Berman from Kraft Foods as senior vice president of marketing.
Fastenal fell 1.9 percent to $49.28 after saying daily sales growth slowed to 2.9 percent last month. Holding the July 4 public holiday on a Thursday contributed to weak sales on July 5, the seller of nuts and bolts said in a statement.
Tyson jumped 4.1 percent to $29.69. The largest U.S. beef producer reported record profit from its chicken unit and wider margins in the beef business.
Facebook rose 3 percent to $39.19 after a Piper Jaffray analyst raised his price target to $46 from $38. The operator of the world's largest social network may gain revenue from video ads, analyst Gene Munster wrote in a note to clients.
Facebook shares climbed above their initial public offering price of $38 last week for the first time since its debut trading day on May 18, 2012. The stock has surged 48 percent since the company said July 24 that mobile advertising revenue grew in the second quarter.
Washington Post Co. climbed 3.7 percent to $589.98 at 4:53 p.m in New York. Amazon.com Chief Executive Officer Jeff Bezos agreed to buy the Washington Post newspaper for $250 million from the company, vaulting the e-commerce magnate into the struggling newspaper industry.
Bezos is making the deal as an individual and not as part of Amazon.com, the world's biggest online retailer, according to a statement Monday after the market's closed.
Barry Knapp, head of U.S. equity strategy at Barclays, raised his year-end forecast for the S&P 500 to 1,600 from 1,525. The raised projection matches the second-lowest among 17 strategists tracked by Bloomberg and implies a 6.4 percent retreat from last week's closing level. Knapp said he expects a reduction in Fed asset purchases in September and the benchmark gauge to plunge below his target before stabilizing, while acknowledging that improving economic data required a higher year-end forecast.
"It appears that our bull case — faster-than-expected improvement in capital investment and better-than-expected consumer resiliency to tax hikes — may be playing out," he wrote in a note to clients dated Friday. "We expect a correction below our new target, followed by stabilization and a broad range that extends into early 2014 as fundamentals catch up with share prices."
With assistance from Sofia Horta e Costa in London.