By Anora Mahmudova, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks moved decisively lower by
mid-afternoon on Monday after Atlanta Federal Reserve president
Dennis Lockhart said he supported "similar tapering steps" in spite
of disappointing jobs figures.
The Dow Jones Industrial Average (DJI) dropped 109.7 points, or
0.7% to 16,328.45. The S&P 500 index (SPX) fell 12.9 points, or
0.7% to 1,829.44. The Nasdaq Composite (RIXF) lost 27.33 or 0.7% to
4,147.49.
In a speech to the Rotary Club of America, Atlanta Fed president
Lockhart said he supports "similar tapering steps" as the one taken
to reduce bond-market purchases by $10 billion by the Federal
Reserve last month, so long as the economy grows at the 2.5% to 3%
clip he's forecasting this year.
He pointed out that the labor market is not as healthy as a 6.7%
unemployment rate suggests as he also said continued disinflation
could pose risks to economic performance. Follow stock market live
blog here.
On Friday, the government reported that the U.S. economy added
74,000 jobs in December, the smallest gain in three years and well
below economists' forecast of about 200,000. The unemployment rate
fell to 6.7%, however, largely due a large number of people
dropping out of the labor force. Investors were undecided whether
this should be taken as a negative or positive for markets, as
stocks fluctuated in an narrow range on Friday, closing mostly
higher.
In separate news, the federal government recorded a budget
surplus of $53 billion in December, the Treasury Department
reported Monday. Nearly $40 billion in payments from
government-controlled mortgage giants Fannie Mae and Freddie Mac
helped the surplus, the largest on record for the month of
December. The surplus brings the government's budget deficit for
the first quarter of fiscal 2014 to $174 billion, 41% lower than
the first three months of fiscal 2013.
This week, investors will also focus on retail sales and
inflation data as well as earnings reports from large banks such as
J.P. Morgan Chase & Co. (JPM) and Goldman Sachs Group Inc.
(GS)Read: Retail data, Beige Book in view after weak jobs
futures
In a research note from David Kostin at Goldman Sachs, wrote
that the S&P 500 valuation is looking "lofty by almost any
measure."
Randy Frederick, a managing director for active trading and
derivatives at Charles Schwab believes that valuations are slightly
above the fair value point, but not enough to be concerned.
"We look at 12-months trailing PE ratios rather than
forward-looking ones, and at roughly 19.5 that number, while
slightly higher than historical average, seems not terribly high.
Even if earnings do not rise as much as we expect, there is still
room for a slight PE expansion."
He also expects that December jobs figures will be revised
upwards.
"Markets believe that the December jobs data were disappointing
primarily due to cold weather and investors think the number is
likely to be revised upwards. Given all other indications
suggesting improving hiring conditions, such as ADP and
manufacturing data, the number of new jobs will be made up in the
next month," Frederick said.
* Comment: Nicholas Colas, chief market strategist at ConvergEx
Group, a global brokerage company based in New York, wrote in a
note: "The most disappointing number from Friday's Employment
Report was not the miss to jobs growth expectations (74,000 versus
the hoped for 200,000), but rather the continued precipitous
decline in labor force participation. At 62.8%, this measure of
people actually working or looking for employment has slumped back
to the levels of the 1970s economic malaise. More importantly, the
trend here has outstripped the U.S. Government's forecasts, which
only called for such a level around 2020. January 2013 may not see
any improvement if Congress does not extend emergency unemployment
benefits, with participation dropping further if the long-term
unemployed chose to exit the workforce as a result. That would
leave the Fed with an unwelcomed communications problem: quickly
drop the 6.5% threshold unemployment rate from its monetary policy,
or risk being seen as out of touch."
* Movers and shakers: Beam Inc. shares surged 24% on news that
it will be acquired by Suntory Beverage Food Ltd. in a $16 billion
deal, including debt. Shares of Alnylam Pharmaceuticals Inc. soared
40% on news Sanofi SA will buy a 12% stake in the company to
strengthen its new drug pipeline. The two firms will extend
research collaboration to develop and sell new drugs aimed at
treating rare genetic disorders. Shares in Apple Inc, rose 1%,
boosting the S&P 500 technology sector. Shares of Twitter Inc.
rose 3.2% after Goldman Sachs lifted its price target for the
social media network to $65 from $46 and maintained a buy rating.
Wendy's Co.shares rose 6.5%, as the fast-food company's expected
adjusted earnings per share were higher than analysts expected.
Wendy's also said its board had authorized a stock buyback program
of $275 million. Shares of Lululemon Athletica Inc. dropped 16.33%
after the company cut its profit view.
* In other markets:European and Asian stocks rose on Monday.
Gold and oil prices were lower, while the dollar pushed higher.
More stories from MarketWatch:
Stock investors get ready for big bank earnings
Retail data, Beige Book in view after weak jobs figures
Banks, hedge funds and what Citi has to tell its rich
clients
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