11-12-13 1:42 PM EST | Email Article

By Victor Reklaitis, MarketWatch


NEW YORK (MarketWatch) -- U.S. stocks pulled back on Tuesday, catching their breath after the Dow industrials scored another record close on Monday.


The market was feeling some pressure from Fed officials warning about a potential stimulus reduction, as well as from a worse-than-expected reading on small-business sentiment.


Joe Bell, senior equity analyst at Schaeffer's Investment Research, said he views stocks as basically consolidating as third-quarter earnings season winds down.


"It seems like we're still in the middle of digesting the strong past month or so that we've had," Bell told MarketWatch.


The S&P 500(SPX) was last down 9 points, or 0.5%, to 1,763, while the Dow Jones Industrial Average(DJI) fell 72 points, or 0.5%, to 15,711 after making short forays into positive territory. The Nasdaq Composite(RIXF) shed 15 points, or 0.4%, to 3,905 after also briefly trading higher.


Atlanta Fed President Dennis Lockhart on Tuesday said the central bank could cut back on its bond buys as soon as next month. "I don't think the circumstances rule out a consideration in December," Lockhart told Bloomberg Radio. The $85-billion-a-month bond-buying program, also known as quantitative easing or QE, has boosted equities


Earlier Tuesday, Dallas Fed President Richard Fisher also warned about a stimulus reduction. He told CNBC: "Our balance sheet has become bloated, and at some point we will have to taper back on the pace of purchases, but that doesn't mean we'll stop."


Minneapolis Fed President Narayana Kocherlakota spoke Tuesday as well, noting that markets are puzzled by all the taper talk.


Meanwhile, the National Federation of Independent Business reported small-business optimism dropped in October after the government shutdown, falling to 91.6 from 93.3 in September, the lowest reading since April.


Tuesday's slip follows a mild move up on Monday, when the Dow achieved a record close, and Friday's big jump after a stronger-than-expected October jobs report.


Regarding Tuesday's modest selling, Scott Redler said early Tuesday that "some blame" Fisher's comments on "how we can't have QE forever." But Redler, chief strategist at T3 Live and T3 Trading Group, added in emailed comments: "It could also just be that we need another day or so to digest Friday's move and last week's volatility."


Markets are largely looking past everything this week until Janet Yellen's nomination hearing on Thursday, said Craig Erlam, market analyst at Alpari U.K., in an email. She is expected to take over leadership of the Federal Reserve from Ben Bernanke. Yellen's "comments on current policy, whether it's working and how much longer it needs to continue, are going to provide the best insight into whether the Fed is on course to taper this year and wrap things up in the middle of 2014," Erlam said.


Schaeffer's Bell said he views stocks as a little overbought, so he expects a period of consolidation and some choppiness before equities begin their next leg up. Last week, the S&P 500 and Dow both posted their fifth up week in a row. But Bell doesn't expect a significant slide, saying many institutions and mom-and-pop investors have been underexposed to the stock market.


"Bigger picture, there's still a lot of doubt and sideline money that's yet to come into this market," he said.


Overseas, China's Third Plenum, a major political meeting, has finished. Communist Party leaders pledged to deepen economic reforms to allow the market to play a "decisive" role in allocating resources, The Wall Street Journal reported.


On the earnings front, shares of Dish Network Corp. (DISH) rose 4% after the satellite TV provider said it swung to a profit in the third quarter. But Rackspace Hosting Inc. (RAX) shares tumbled 12% after the cloud-computing company posted third-quarter earnings that missed expectations late Monday.


In other markets, European stocks mostly lost ground, while Asian equities mostly advanced. Gold prices and crude oil edged lower, as the dollar rose.


Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

November 12, 2013 13:42 ET (18:42 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.
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Morningstar - 2013/11/12 - MARKET SNAPSHOT: Stocks Pull Back, Pressured By New Taper Talk
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