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US stocks fall as data, corporate earnings drive QE speculation

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US stocks fall as data, corporate earnings drive QE speculation

Stocks on the American exchanges fell one day after the Dow Jones Industrial Average extended its record high, as market participants weighed economic data and corporate earnings against the Federal Reserve’s balance sheet. Stronger-than-expected GDP and employment growth, combined with a stellar earnings season from top US companies, has fueled speculation about the pace and timing of a Fed asset taper.

The Federal Open Market Committee will next meet December 17 to discuss monetary policy. Economists expect the Fed to reign in record stimulus no sooner than March 2014, according to a median estimate of economists surveyed by Bloomberg. The Fed balance sheet has swelled to $3.8 trillion since monetary easing was first introduced in 2009. The Standard & Poor’s 500 Index has gained more than 160 percent over that period, on its way to its best yearly performance since 2003.

The Labor Department’s October employment report is “what’s really changed the idea that we could have a December taper,” said James Paulsen of Wells Capital Management. Fed Bank of Atlanta President Dennis Lockhart said tapering could still be an option at next month’s meeting. Lockhart has backed record stimulus, but is not a voting member of the FOMC this year.

The S&P 500 Index fell 0.24 percent to 1,767.69, one day after closing within a point of the all-time high it set in October. The Dow fell more than 32 points to 15,750.00 after 17 of its 30 members declined. The Travelers Cos Inc, Chevron Corporation and Walt Disney declined at least 0.83 percent.

While benchmark indices have been well supported amid continual Fed stimulus, a second consecutive quarter of strong earnings have boosted investor confidence. Whether strong earnings are a sign of an improving economy or stimulus in disguise is yet to be seen. With Janet Yellen soon to take over as Chair of the Fed, the central bank won’t rush to tighten monetary policy.

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