U.S. stocks stumbled Thursday after a series of strong economic reports raised investor concerns that the Federal Reserve could begin to withdraw some of its economic stimulus next month.
Claims for jobless benefits unexpectedly dropped last week to the lowest level in almost six years, signaling a continued recovery in the employment market. Confidence among U.S. home builders rose this month, reaching its highest level since 2005. Consumer prices, a reflection of inflation, rose 0.2 percent last month.
The rise in inflation shows the “continued healing of the U.S. economy” and the resurgence of consumer demand, said Steven Cunningham, the chief economist of the American Institute for Economic Research. “This is an economy returning to a normal inflationary pattern.”
Investors have been nervous that upbeat economic reports would set the stage for the Federal Reserve to begin scaling back its bond-buying program soon.
That helped send the price of government bonds down Thursday as buyers continued to move out of the market. Treasury yields rose above 2.8 percent for the first time in two years.
Sixty-five percent of economists in a Bloomberg survey now predict that the Fed will begin to trim its bond purchases after its next scheduled meeting in September. Last month, only half of the economists made that prediction.
The Standard & Poor’s 500-stock index and the Dow Jones industrial average both slipped about 1.4 percent, and the Nasdaq composite index fell 1.7 percent.
“The stock market will recover from its concerns about the Fed tapering,” said Bill Hampel, chief economist at the Credit Union National Association. “In the long term, the stronger the economy, the better it is for everyone, including the stock market.”
The market was also weighed down by Cisco and Wal-Mart, which tamed their profit expectations for the rest of the year.
Wal-Mart, the world’s largest retailer, trimmed its earnings forecast for the year and reported weak second-quarter earnings. It’s stock fell 2.6 percent Thursday to close at about $74 a share.
Cisco, the world’s biggest maker of networking equipment, said Thursday that revenue for the current quarter will be below, or on the lower end, of analyst expectations. Earlier this week, the company announced 4,000 job cuts amid weaker global sales. Its stock tumbled 7 percent to close at about $24 a share.
Despite the economic recovery, it can still be difficult to squeeze out a profit, analysts said. Data compiled by Bloomberg show that 72 percent of the companies in the benchmark index exceeded profit estimates last quarter. But only 55 percent topped analyst forecasts for revenue, suggesting that the improvement in their bottom line has more to do with cost-cutting than rising sales.