Stocks Fall on Fed Uncertainty

The three major stock indexes earlier traded in a tight range, supported by a gain of more than 12 percent in Cisco Systems shares and as investors took in a batch of economic data that pointed to slower growth.

But the Standard Poor’s 500-stock index finished near its session low after the comments from John C. Williams, the president of the Federal Reserve Bank of San Francisco, who also said the Fed could end its bond purchases this year, assuming the labor market continued to grow stronger. Mr. Williams is not a voter on the Fed’s policy-setting panel this year.

“When a Fed governor is out there and mentions this possibility, it does spook the market a little, because I don’t think anybody quite knows how the stock market is going to react” after the stimulus ends, said Timothy M. Ghriskey, chief investment officer of Solaris Group in New York.

The Fed’s purchases of $85 billion a month in bonds have been a significant driver of the rally in equities that has taken indexes to highs and pushed the S. P. 500 up nearly 16 percent this year.

Analysts also said the comments could have been viewed as a reason to take a pause after such a strong run-up in stocks.

“It turned a boring day into a bit of profit-taking,” Mr. Ghriskey said.

The Dow Jones industrial average dropped 42.47 points, or 0.28 percent, to 15,233.22 at the close. The S. P. 500 fell 8.31 points, or 0.50 percent, to end at 1,650.47. The Nasdaq Composite Index slipped 6.38 points, or 0.18 percent, to finish at 3,465.24.

Earlier, the Dow reached a new intraday high, at 15,302.49.

The Nasdaq fared better than the other two major indexes as Cisco shot up 12.6 percent, to $23.89, after it posted a higher-than-expected quarterly profit and said current-quarter revenue could increase.

Economic data set a lackluster tone in markets early in the day as factory activity in the mid-Atlantic region contracted, while housing starts plummeted 16.5 percent in April. New claims for jobless benefits unexpectedly jumped last week.

However, investors had speculated that soft underlying inflation also meant the Fed had room to continue its economic stimulus.

Wal-Mart Stores fell 1.7 percent, to $78.50, and dragged on the Dow after it posted a quarterly profit that missed expectations, with sales down 1.4 percent at United States stores open at least a year.

Tesla Motors shares gained 8.7 percent, to $92.25, after the carmaker said it aimed to raise $830 million through a stock-and-debt offering that would be used to repay its Energy Department loans with interest. The stock has surged more than 50 percent since the company reported earnings last week.

The price of the benchmark 10-year Treasury note rose 18/32, to 98 27/32, dropping the yield to 1.88, from 1.94 on Wednesday.

Article source: http://www.nytimes.com/2013/05/17/business/daily-stock-market-activity.html?partner=rss&emc=rss