Stocks slide on worries that Fed will back off

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Posted: Thursday, August 15, 2013 12:00 am

NEW YORK — U.S. stocks thudded lower for a second day Thursday, with the Dow posting its first back-to-back triple-digit drop since June, as Treasury yields spiked to 2011 highs and Walmart Stores Inc. and Cisco Systems Inc. cut their forecasts.

Several upbeat economic reports, in a twist, spurred thinking that the Federal Reserve will begin to scale back its monthly bond buys in September, starting to remove what many investors think has underpinned the stock market’s record run.

Right now, investors are focused on the Fed’s next move, said Natalie Trunow, chief investment officer at Calvert Investments.

“There’s this counterintuitive reaction to economic news,” Trunow said. “Positive data comes out and markets aren’t excited about it. They say, ‘Uh-oh, the stimulus will be removed’.”

The Dow dropped 225.47 points, or 1.5 percent, to end at 15,112.19, with Cisco pacing the drop, off 7.2 percent. Of the Dow’s 30 components, 28 fell. Walmart’s shares were down 2.6 percent.

“Cisco speaks to enterprise and service-provider spending, so that outlook is cloudy. And even more disappointing, if you look at almost two-thirds of the economy is driven by the consumer, and it looks like the consumer took the month of July off,” said Art Hogan, a market strategist at Lazard Capital Markets, noting that Walmart’s word came a day after another big retailer, Macy’s Inc., reported an unexpected drop in sales and cut its full-year profit targets.

The poor performance by retailers last month is also a concern heading into a seasonally important part of the year, as “we don’t want it to extend into back-to-school and holiday spending,” Hogan said.

Still, the market’s fall should be viewed in the context of the calendar, Hogan said: “It’s August, and volumes are still dreadfully low. Low volume leads to high volatility.”

Thursday’s economic reports, including one showing an improving labor market, helped cement the belief that the Fed will cut its monetary stimulus soon.

Among the economic reports was that consumer prices climbed 0.2 percent in July and that the number of Americans filing for new jobless benefits fell by 15,000, to 320,000, last week.

This report includes material from The Associated Press.

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