By Oliver Renick
US stocks fell for a second day, after benchmark indexes reached records Monday, as declines in industrial companies led a retreat before the government's jobs report Friday.
Alcoa Inc sank 4.7 percent as industrial companies paced declines among nine of 10 groups in the Standard & Poor's 500 Index. The health-care group was the benchmark's only advancer as Tenet Healthcare Corp and HCA Holdings Inc climbed more than 4.3 percent. The Nasdaq Biotechnology Index rose to an intraday record.
Economic reports this week could give clues on when the Federal Reserve may increase its benchmark interest rate.Credit: AP
The S&P 500 declined 0.6 percent to 2,095.12 at 2:16 p.m. in New York. The Dow Jones Industrial Average lost 134.57 points, or 0.7 percent, to 18,068.80. The Nasdaq Composite Index fell 0.4 percent. Trading in S&P 500 companies was 9 percent below the 30-day average.
"The market is vulnerable to some sort of short-term decline, primarily because valuations are stretched," Dan Morris, a global investment strategist at TIAA-CREF Asset Management in New York, said by phone. His firm oversees about $611 billion. "It's hard to find inexpensive parts of the market."
The Federal Reserve's Beige Book showed most of the economy continued to expand from January through mid-February, with consumer spending rising and manufacturing gaining.
The S&P 500 trades at 18.9 times earnings, an almost a five-year high and compared with an average of 16.9 since 1936, data compiled by Bloomberg and S&P Dow Jones Indices show.
Economic Data
While the S&P 500 rose to fresh records four times in February, its 2.4 percent gain this year trails all but two of the 24 developed markets. The Dow in February posted its best month in two years.
Economic reports this week could give clues on when the Federal Reserve may increase its benchmark interest rate. Companies in the U.S. added 212,000 workers to payrolls in February, figures from Roseland, New Jersey-based ADP Research Institute showed. The median projection of 46 economists surveyed by Bloomberg called for an advance of 219,000. The January reading was revised to 250,000 from a previously reported advance of 213,000.
The data comes before the Labor Department's report Friday in which economists predict nonfarm payrolls rose 235,000 last month and the unemployment rate fell to 5.6 percent from 5.7 percent in January.
Service industries unexpectedly expanded at a faster pace in February, encouraging companies that make up the biggest part of the U.S. economy to take on more workers.
The Institute for Supply Management's non-manufacturing index increased to 56.9 from the prior month's 56.7, the Tempe, Arizona-based group said Wednesday. A gauge above 50 shows expansion and the median estimate in a Bloomberg survey of economists called for 56.5.
Industrials, Energy
Investors are also awaiting details of the European Central Bank's debt-purchase program on Thursday. ECB President Mario Draghi on Jan. 22 announced a 1.1 trillion-euro ($1.2 trillion) quantitative-easing plan to counter slowing growth and the threat of deflation, spurring a rally across equity markets worldwide.
Costco Wholesale Corp and Staples Inc are among S&P 500 members reporting later this week. With almost all companies having released earnings by now, 74 percent beat profit projections and 56 percent topped sales estimates for the final three months of 2014. Analysts predict profit at S&P 500 companies will drop 4.9 percent in the current quarter.
Industrial stocks in the S&P 500 fell 0.9 percent. Alcoa Inc declined 4.4 percent and Century Aluminum Co. lost 14 percent after Bank of America analyst Timna Tanners cut their ratings to neutral from buy, citing in part the impact from a stronger U.S. dollar. Fastenal Co. slid 2.9 percent, while rival supplier W.W. Grainger Inc fell 2.6 percent.
Abercrombie Tumbles
Abercrombie & Fitch Co. tumbled more than 13 percent after posting a worse fourth-quarter sales decline than analysts estimated after struggling to lure customers during the holidays.
Bob Evans Farms Inc shares plunged 22 percent after the board scrapped the idea of selling or spinning off its sausage and refrigerated-food business.
Consol Energy Inc dropped 5.6 percent and Chesapeake Energy Corp lost 5.3 percent, pacing a 0.8 percent retreat in the energy group. WTI crude oil rose more than 2 percent after earlier falling 1.8 percent.
Health-care shares were the only group to advance, as Tenet Healthcare Corp and HCA Holdings Inc rallied more than 4.9 percent amid questioning during a Supreme Court challenge to Obamacare's insurance subsidies.
Justice Anthony Kennedy, often a swing vote in important cases, said there is a "powerful" point to the Obama administration's argument that the law would fall apart if the subsidies were ruled unlawful.
American Eagle Outfitters added 7.6 percent after quarterly results and first-quarter profit outlook exceeded analysts' forecasts.
The Chicago Board Options Exchange Volatility Index advanced 5.7 percent to 14.65. The gauge, known as the VIX, lost 36 percent in February for its biggest monthly decline on record.