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Stocks Deflate as Global Stimulus Hopes Ebb

NEW YORK ( TheStreet) -- Major U.S. stock markets dropped Tuesday as investor hopes for an expansion of coordinated global stimulus measures ebbed after the Bank of Japan elected not to implement more government bond purchases.

Adding to the uncertainty was sustained ambiguity as to when the Federal Reserve might scale back its easing efforts, and the beginning of the German constitutional court's two-day hearing on whether the European Central Bank's bond-buying program is even legal.

Within this uncertain mix, the S&P 500 declined 1.02% to close at 1,626.13 while the Dow Jones Industrial Average lost 0.76% to 15,122.02. The Nasdaq fell 1.06% to 3,436.95.

"The commentary about Japan has pulled the market back a little bit -- I'm not sure I personally agree with that's why the market should pull back -- but, again, any good market that moves up, especially the way this has moved up, is going to retrench a little bit," said Robert Spina, portfolio manager of the Spina Group at Morgan Stanley Wealth Management.

Citigroup (C - Get Report) declined after Portales Partners analyst Charles Peabody warned that the bank could lose up to $7 billion in regulatory capital this year if the dollar gains against the Japanese yen, the euro and currencies in emerging markets, which generate about half of the company's profits. Shares fell 3.8% to $49.95.

General Motors (GM - Get Report) slipped 2.3% to $33.93. The automaker is slashing the price of its Chevy Volt electric car by $4,000 in hopes of increasing sales of the vehicle. The price tag for a 2013 Volt might end up coming in as low as $28,500 with the help of tax incentives and the discounted pricing.

Treasury yields were spiking amid the disappointment that the Bank of Japan wasn't doing more to ease its volatile bond market, but reversed course in the afternoon. The benchmark 10-year Treasury was lifting 11/32, diluting the yield to 2.178%. The Bank of Japan stood pat on its current monetary policy, saying it would continue to purchase assets that would expand Japan's monetary base at an annual pace of about 60 trillion yen ($612 billion) to 70 trillion yen in efforts to reach its 2% inflation target.

Prospects for a Fed stimulus pullback increased following upbeat numbers on Friday that showed an improvement in May's government non-farm payrolls report coupled with Standard & Poor's decision to raise its credit rating outlook on the United States.

"While certainly it matters that the Fed will slow down its bond purchases, we think that's really been too much of a focus on short-term thinking," said Kate Warne, investment strategist at Edward Jones. "Knowing that the Fed will eventually slow down its bond purchases is probably all most investors need to know."

Sprint (S) was a prominent advancer, up 2.4% to $7.35 after Japan's Softbank raised its offer for Sprint by $1.5 billion to $21.6 billion. Softbank also significantly increased the cash it will pay to Sprint's current investors.

SoftBank aims to buy Sprint for $7.65 a share by upping its stake in the No. 3 telecom provider to 78% and increasing the cash component of its proposed merger by $4.5 billion. The revised deal now also carries the backing of hedge fund Paulson & Co., Sprint's second largest shareholder.

Diamond Foods (DMND) popped 9.4% to $19.18 after reporting quarterly earnings of 5 cents a share, beating the average analyst estimate of a loss of 17 cents a share. However, the company did have to restate its prior quarter earnings to 37 cents a share versus the prior report of 43 cents a share because of a calculation error.

The Census Bureau reported Tuesday that wholesale inventories increased by 0.2% in April, as expected.

Written by Andrea Tse and Joe Deaux in New York

>To contact the writer of this article, click here: Andrea Tse.

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C $46.28 -0.96%
DMND $37.56 0.97%
GM $31.79 -2.00%
S $3.44 -3.90%
AAPL $93.75 -1.10%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.87 -9.94 -0.48%
NASDAQ 4,775.8150 -29.4760 -0.61%

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