U.S. stocks fell, erasing the previous session’s advance, after a smaller-than-forecast gain in personal incomes added to concern the economic rebound may slow further.
“The increase in spending in July was encouraging, it was slightly better than expected, but the drop in disposable income raises further questions about the sustainability of that spending increase,” said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees $63 billion. “The report reinforces the belief that organic economic growth remains lackluster and the recovery is fragile.”
Financial companies, chipmakers and retailers led declines in all 24 industry groups in the S&P 500 after government data showed personal incomes climbed 0.2 percent in July, less than the 0.3 percent projected in a Bloomberg survey of economists. Personal spending rose 0.4 percent, Commerce Department figures showed. Disposable incomes, or the money left over after taxes, dropped for the first time since January after adjusting for inflation.
Reduced Forecast
Barclays Capital reduced its year-end S&P 500 forecast for 2010 to 1,120 from 1,220 late Aug. 27, saying “the market- implied probability of recession increases.”
“We haven’t given up on a late-2010 rally,” wrote New York-based Barclays strategist Barry Knapp in a note to clients. “However, a number of factors will need to fall into place,” he said, including an extension of the Bush tax cuts, a change in control of Congress and a return of the Fed’s asset-buying program known as “quantitative easing.”
Economy, Bernanke
Investors will also get reports on manufacturing and payrolls later in the week to assess whether the economic rebound is faltering.
Speaking at the Fed’s annual conference in Jackson Hole, Wyoming on Aug. 27, Bernanke said the central bank has the tools to prevent the U.S. economy from slipping back into a recession, while stopping short of indicating an immediate need for more stimulus.
‘Not Reacting Positively’
“We will continue to struggle with: Is the pace continuing to slow further or is that pace continuing to pick up?” said Timothy Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York, which manages $2 billion. “Bigger news we’re seeing today is continued acceleration in M&A. It’s not reacting positively to it in the overall market, which is somewhat surprising. There is this overhang about macroeconomic issues.” LINK
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