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U.S. Stocks Drop as Manufacturing Gauge Falls More Than Forecast

February 3, 2014

Feb. 3 (Bloomberg) -- U.S. stocks fell, after the Standard & Poor’s 500 Index posted its biggest January loss since 2010, as a gauge of manufacturing in the world’s largest economy declined more than estimated.

Telephone stocks dropped after AT&T Inc. introduced new service plans, the latest in an escalating price war among wireless carriers. Jos. A. Bank Clothiers Inc. slid 3.1 percent after management told Men’s Wearhouse Inc. it will not enter takeover talks. Herbalife Ltd. climbed 1.8 percent after the vitamin maker boosted its share buyback by 50 percent.

The S&P 500 fell 0.6 percent to 1,771.99 at 10:05 a.m. in New York. The Dow Jones Industrial Average lost 84.26 points, or 0.5 percent, to 15,614.59. Trading in S&P 500 stocks was 28 percent above the 30-day averaging during this time of the day.

The S&P 500 slid 3.6 percent in January as the Federal Reserve trimmed its bond-buying program for the second time in as many months and emerging-market currencies tumbled amid signs growth was slowing in China. The country’s official Purchasing Managers’ Index decreased to a six-month low in January as output and orders slowed.

In the U.S., the Institute for Supply Management’s factory index decreased to 51.3 in January from 56.5 the prior month, the Tempe, Arizona-based group’s report showed today. Readings above 50 indicate expansion.

The median forecast of 85 economists surveyed by Bloomberg called for a decline to 56. Estimates ranged from 54 to 57.5. Manufacturing accounts for about 12 percent of the economy. The factory gauge averaged 53.9 for all of 2013.

 

Fed Stimulus

 

Fed policy makers said on Jan. 29 that the central bank will trim its monthly bond purchases by $10 billion to $65 billion, cutting the pace of stimulus for a second straight meeting because of an improving economy.

Three rounds of Fed bond buying has helped drive the S&P 500 up 163 percent from a 12-year low in 2009 while pushing capital into emerging markets in search of higher returns. The benchmark gauge for U.S. equities reached a record 1,848.38 on Jan. 15 and has fallen 3.6 percent since then.

"The market is adjusting to the Fed taking the punch bowl away," Douglas Cote, chief market strategist at ING U.S. Investment Management in New York, in a telephone interview. His firm oversees about $200 billion. "The market’s fundamentals remain solid. Even though we’re in the correction phase, ultimately the path for the market is up."

 

Debt Ceiling

 

Treasury Secretary Jacob J. Lew today said the U.S. risks breaching the federal debt limit by the end of this month and called on Congress to raise it immediately to sustain economic momentum. The debt ceiling was suspended through Feb. 7 under an agreement between President Barack Obama and congressional Republicans in October. The Treasury Department uses so-called extraordinary measures, or accounting maneuvers, stay under the ceiling.

Anadarko Petroleum Corp. and Yum! Brands Inc. are among 11 S&P 500 companies reporting earnings today. Profit at companies in the benchmark gauge probably increased by 8.3 percent in the fourth quarter of 2013 and their revenue by 2.5 percent, analysts’ estimates compiled by Bloomberg show.

Telephone stocks lost 1.5 percent, the most among 10 S&P 500 industry groups. AT&T dropped 1.9 percent to $32.70 while Verizon Communications Inc. declined 1.8 percent to $47.17, the two biggest drops in the Dow.

 

Cellular Plans

 

AT&T’s new offer cuts $40 a month from premium users’ bills. The move is an escalation of competition in the mobile market where AT&T and T-Mobile US Inc. have run back-and-forth attack ads and offered $450 in credit to entice customers to switch service providers.

Jos. A. Bank dropped 3.1 percent to $54.49. The retailer, which told Men’s Wearhouse Inc. it won’t enter buyout talks, has been looking at other acquisitions including retailer Eddie Bauer, people familiar with the matter said.

Herbalife climbed 1.8 percent to $65.55. The company, which hedge-fund manager Bill Ackman accused of being a pyramid scheme, raised its repurchase program to $1.5 billion. Herbalife also said it will offer $1 billion in convertible senior notes.

Time Warner Cable Inc. advanced 1.4 percent to $135.15. Charter Communications Inc. is considering raising its buyout offer to about $142.50 a share, Reuters reported citing people familiar with the situation. Charter has offered $132.50 a share.

 

--Editor: Jeremy Herron

 

To contact the reporters on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

 

To contact the editor responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net

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