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U.S. Stocks Fluctuate on Fed Officials’ Comments, UPS Forecast

July 12, 2013

July 12 (Bloomberg) -- U.S. stocks fluctuated after benchmark indexes closed at records yesterday, as Federal Reserve officials gave opposing views on the timing of stimulus reduction and United Parcel Service Inc. cut its forecast.

UPS fell 5.8 percent as it lowered its forecast for earnings in 2013, citing a slowing economy in the second quarter. Boeing Co. plunged 4.6 percent after the U.K.’s Sky TV reported a parked 787 Dreamliner had caught fire at London’s Heathrow Airport. Financial stocks rose the most out of 10 S&P 500 group after JPMorgan Chase & Co. and Wells Fargo & Co. reported earnings that topped analysts’ estimates.

The S&P 500 dropped less than 0.1 percent to 1,674.62 at 1:36 p.m. in New York. The Dow Jones Industrial Average lost 29.72 points, or 0.2 percent, to 15,431.20. Trading in S&P 500 stocks was 12 percent below the 30-day average at this time of day.

"The market is catching its breath after a big push to a record high," Alan Gayle, senior strategist at RidgeWorth Capital Management, said by telephone from Atlanta. His firm oversees about $48 billion. "The market is encouraged by the earnings releases so far but UPS was disappointing. That’s a good GDP bellwether stock. When they give lowered guidance, investors will watch very carefully."

The S&P 500 gained 1.4 percent to a record 1,675.02 yesterday after Fed Chairman Ben S. Bernanke backed sustained monetary stimulus. The gauge has added 2.6 percent in the past five days, headed for a third straight week of gains. The rally has helped to erase losses since Bernanke first signaled the Fed may trim its $85 billion in monthly bond purchases later this year.

 

‘Very Soon’

 

Fed Bank of Philadelphia President Charles Plosser, who has opposed the central bank’s current round of asset purchases, said the Fed should begin tapering its bond buying in September and end the unorthodox stimulus by year-end.

"I don’t want to do it all at once, but I think we should begin to taper very soon and hopefully end it by the end of this year," Plosser said today in a Bloomberg Television interview with Michael McKee to air July 15. "That would be a healthy thing for the economy. We can do it gradually."

Fed Bank of St. Louis President James Bullard said the Fed shouldn’t trim its monthly bond purchases until inflation accelerates toward the central bank’s 2 percent goal.

"Pulling back on accommodation as inflation is sinking is not the right combination," Bullard, who votes on monetary policy this year, said in a separate interview with Bloomberg TV.

 

Policy Debate

 

The debate among Fed policy makers has fueled speculation in the past six weeks on the timing of any stimulus reduction. Central bank bond buying has helped fuel a rally in stocks worldwide, with the benchmark U.S. index surging as much as 148 percent from its March 2009 low. The S&P 500 advanced for six straight days through yesterday, the longest winning streak since March 11.

The gauge sank as much as 5.8 percent after reaching a record May 21, the day before Bernanke said the central bank may start paring stimulus efforts as soon as September if the economy improves in line with its forecasts. The index has rebounded 6.1 percent from a June 24 bottom as economic data from hiring to housing tempered concern over possible tapering.

A report today showed consumer confidence unexpectedly cooled in July as Americans became less optimistic about the outlook for the economy. Separate data indicated wholesale prices in the U.S. rose more than projected in June, reflecting higher costs for energy and automobiles.

 

Earnings Estimates

 

Investors have turned their attention toward earnings results this week. Profit at companies listed on the S&P 500 rose 1.8 percent last quarter, down from a projection of 8.7 percent six months ago, according to analyst estimates compiled by Bloomberg. Lower expectations helped about 73 percent of the companies in the benchmark measure exceed forecasts by an average of 5.1 percent for the first three months of the year, Bloomberg data show.

UPS said a slowing U.S. economy hurt second-quarter profit and revenue. The world’s largest package delivery company and rival FedEx Corp. are often viewed as economic bellwethers because they transport goods across the world.

UPS tumbled 5.8 percent to $86.16, after earlier falling as much as 6.2 percent, the most intraday since May 2010. FedEx slid 2.1 percent to $102.24.

 

787 Fire

 

Boeing plunged 4.6 percent to $100.92. London Heathrow airport closed to flights after a fire involving a Boeing 787 jet operated by Ethiopian Airlines Enterprise.

The aircraft, Boeing’s newest model and beset by battery- related fire incidents that grounded the global fleet earlier this year, was parked at a remote stand and coated in fire- retardant foam, images broadcast by Sky Television showed.

Precision Castparts Corp., the maker of metal forgings for jet engines and a Boeing supplier, slid 2.6 percent to $231.15.

Reports from JPMorgan and Wells Fargo, the first of the six-largest U.S. lenders to report, drove bank stocks 1.5 percent higher as a group. JPMorgan gained 0.3 percent to $55.31 as the largest U.S. lender by assets reported a 31 percent increase in second-quarter profit that beat analysts’ estimates as revenue from trading stocks and bonds climbed.

Second-quarter net income rose to $6.5 billion, or $1.60 a share, from $4.96 billion, or $1.21, in the same period a year earlier, the New York-based company said in a statement. The average estimate of 30 analysts surveyed by Bloomberg called for earnings of $1.45 adjusted for a one-time accounting item.

 

Wells Fargo

 

Wells Fargo rose 2.1 percent to $42.75. The largest U.S. home lender said second-quarter profit climbed 19 percent as the company clamped down on expenses.

Net income advanced to $5.52 billion, or 98 cents a share, from $4.62 billion, or 82 cents, a year earlier, the San Francisco-based company said today in a statement. The average estimate of 33 analysts surveyed by Bloomberg, excluding some items, was 93 cents a share.

Netflix Inc. gained 4.4 percent to $254.89. The largest subscription video-streaming service is in talks for another season of "Arrested Development," said Brian Grazer, co- chairman of the production company, Imagine Entertainment.

Regeneron Pharmaceuticals Inc. added 3.8 percent to $257.16 after Joshua Schimmer, a New York-based analyst at Lazard Capital Markets Ltd., lifted his rating on the maker of the eye medicine Eylea to buy from neutral.

WebMD Health Corp. surged 26 percent to $33.94 after the company said second-quarter revenue rose to as much as $125 million, above analyst estimates for $117 million. The health information services provider raised its full-year earnings outlook to as much as $11 million, from a previously anticipated loss of as much as $13 million. Shares have more than doubled this year.

 

--With assistance from Tom Stoukas in Athens. Editor: Jeremy Herron

 

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Alex Barinka in New York at abarinka2@bloomberg.net

 

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

 

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