U.S. stocks decline from records amid interest-rate speculation

FEDERAL RESERVE CHAIRWOMAN JANET YELLEN continues to signal that the Fed will not start increasing interest rates until there is more evidence that the economic recovery is broadening. / BLOOMBERG NEWS FILE PHOTO/ANDREW HARRER
FEDERAL RESERVE CHAIRWOMAN JANET YELLEN continues to signal that the Fed will not start increasing interest rates until there is more evidence that the economic recovery is broadening. / BLOOMBERG NEWS FILE PHOTO/ANDREW HARRER

NEW YORK – U.S. stocks fell from records, led by declines among small companies, as investors weighed valuations and speculated the Federal Reserve may raise interest rates sooner than expected.

GT Advanced Technologies Inc. sank 11 percent after Canaccord Genuity Group Inc. downgraded the stock to hold from buy. Expedia Inc. slid 1.9 percent after agreeing to make a $658 million acquisition. King Digital Entertainment Plc added 3.6 percent as Piper Jaffray Cos. advised investors to buy shares in the creator of the Candy Crush Saga video game.

The Standard & Poor’s 500 Index fell 0.4 percent to 1,976.64 at 11:40 a.m. in New York. The Dow Jones Industrial Average dropped 63.70 points, or 0.4 percent, to 17,004.56. The Russell 2000 Index of small companies slid 1.4 percent, the most since May. Trading in S&P 500 stocks was 7.8 percent below the 30-day average today after U.S. equities markets were closed July 4 for the Independence Day holiday.

“There’s a little profit-taking from hitting those record highs,” Stephen Carl, principal and head equity trader at New York-based Williams Capital Group LP, said in a phone interview. “The market’s not retracing sharply, just falling off modestly. We’re in a lighter trading environment, and we could continue to grind higher.”

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Both the S&P 500 and the Dow average advanced 1.3 percent last week, with the 30-stock gauge closing above 17,000 for the first time, as monthly payroll addition exceeded 200,000 for a fifth month in June.

Goldman Sachs Group Inc. brought forward its forecast for the Fed to raise interest rates, joining companies including JPMorgan Chase & Co. and Bank of Tokyo-Mitsubishi UFJ Ltd. in moving up estimates following the jobs data last week.

Rate speculation

The central bank will increase its benchmark rate in the third quarter of 2015, rather than the first three months of 2016, Goldman Sachs Chief Economist Jan Hatzius wrote in a report Sunday.

Policy makers have kept their target for overnight lending between banks in a range of zero to 0.25 percent since December 2008. The central bank will publish the minutes of its June 17-18 meeting on July 9.

Fed Chair Janet Yellen said on July 2 that concerns about financial stability shouldn’t prompt a change in current policy. Three rounds of monetary stimulus from the Fed and better than-forecast corporate earnings have driven the S&P 500 up more than 190 percent from its March 2009 bottom.

The equities benchmark is trading at 16.7 times the projected earnings of its members, higher than the five-year average multiple of 14.3. The Chicago Board Options Exchange Volatility Index, the measure known as VIX that tracks investors’ estimate of future volatility, slumped last week to the lowest level since February 2007. The gauge jumped 11 percent today to 11.43, poised for the biggest advance in nearly three months.

Not cheap

“Valuations are pretty stretched, and we don’t see a lot of revenue growth, which might be negative for the market,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview. “There may be some concern about earnings, but this is basically a market being driven by an improving economy and guarantees by the Federal Reserve that they’re not going to raise interest rates.”

Alcoa Inc. will unofficially open the second-quarter earnings-reporting season Tuesday. Profit at companies in the S&P 500 increased 5 percent in the three months through June, estimates compiled by Bloomberg show.

Eight of the 10 main S&P 500 groups retreated today, with materials producers sliding 0.9 percent for the biggest loss. Peabody Energy Corp. sank 4 percent to lead declines in the broader gauge.

GT Advanced Technologies dropped 11 percent to $17.34. Canaccord said the company is unlikely to get a boost in earnings in 2016 unless Apple Inc. uses its sapphire in all models of the iPhone.

Expedia fell 1.9 percent to $80.66. The online travel- booking service agreed Sunday to buy Australia’s Wotif.com Holdings Ltd. for about $658 million, seeking to expand its presence in the Asia-Pacific region.

King Digital added 3.6 percent to $22.65. Piper Jaffray upgraded its recommendation on the Dublin-based company to overweight, similar to buy, from neutral.

American Apparel Inc. climbed 2.9 percent to 90 cents. Standard General LP, the clothing manufacturer and retailer’s largest investor, is considering paying off a $10 million loan to help the company avoid deeper legal disputes, according to a person familiar with the situation.

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