Stocks slide on disappointing GDP

January 30, 2015 08:48 AM

U.S. stock-index futures dropped, with the Standard & Poor’s 500 Index heading for its biggest monthly decline in a year, as investors assessed data showing slower economic growth for clues on the timing of higher interest rates.

Contracts on the benchmark gauge expiring in March slid 1% to 1,998.60 at 9:04 a.m. in New York. Futures were down as much as 1.1% before the release of economic data. Dow Jones Industrial Average futures slipped 179 points, or 1%, to 17,253.

The economy in the U.S. expanded at a slower pace than forecast in the fourth quarter as cooling business investment, a slump in government outlays and a widening trade gap took some of the luster off the biggest gain in consumer spending in almost nine years.

“All this data does is further cloud the entire investment picture,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. “It confirms that there’s going to be continued uncertainty and continued significant volatility.”

Gross domestic product grew at a 2.6% annualized rate after a 5% gain in the third quarter that was the fastest since 2003, Commerce Department figures showed Thursday in Washington. The median forecast of 85 economists surveyed by Bloomberg called for a 3% advance. Consumer spending, which accounts for almost 70% of the economy, climbed 4.3%, more than projected.

Fed Stimulus

Federal Reserve officials are confronting divergent economic forces as they weigh the timing of the first interest- rate increase since 2006. Surprisingly strong job gains argue for tightening sooner, while inflation held down by a plunge in oil prices and a cooling global economy provides grounds for delay.

The central bank boosted its assessment of the economy in a statement this week and downplayed low inflation readings, while repeating a pledge to remain “patient” on raising interest rates. It acknowledged global risks, saying it will take into account readings on “international developments” as it decides how long to keep rates low.

“In the background of all of these reports is the Fed,” Jim Paulsen, chief investment strategist at Wells Capital Management, said by phone. Paulsen helps manage $351 billion in assets. “It’s the big elephant in the room in terms of how fast they might raise rates.”

Equity futures fell earlier as data showed consumer prices in the euro area fell more than economists forecast in January, underscoring the challenges facing European Central Bank President Mario Draghi. The ECB last week unveiled a 1.14 trillion-euro ($1.3 trillion) quantitative-easing program to combat deflation.

Earnings Season

Companies from Procter & Gamble Co. to DuPont Co. and Pfizer Inc. have said the U.S. currency’s strength is hurting profits. The strongest dollar in a decade is making American goods and services more expensive overseas, eroding sales.

About 78% of the S&P 500’s more than 220 companies that posted earnings this season have beaten analyst estimates, while 56% have topped sales projections, data compiled by Bloomberg show. Inc. surged 13% after the online retailer posted a fourth-quarter profit, following two straight quarters of losses.

Visa Inc., the world’s largest payments network, climbed 3.8% as first-quarter profit beat analysts’ estimates and the company announced a 4-for-1 stock split. Goldman Sachs Group Inc. is poised to replace Visa as the most heavily weighted component of the Dow after the split.

MasterCard Inc. added 4.2% after profit beat analysts’ estimates as customer spending climbed.

Costco Wholesale Corp. advanced 1.9% after the largest U.S. warehouse-club chain said it plans to return $2.2 billion to shareholders through a special dividend.

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