World shares retreat on Fed positioning

Trader Edward McCarthy, left, works on the floor of the New York Stock Exchange. File photo / AP

Stocks on both sides of the Atlantic retreated amid more signs of positive US growth, which is encouraging investors to bet on a more hawkish stance on interest rates when the Federal Reserve meets next week.

In late afternoon trading in New York, the Dow Jones Industrial Average fell 0.17 per cent, the Standard & Poor's 500 Index inched 0.02 per cent lower and the Nasdaq Composite Index retreated 0.20 per cent.

Wall Street is trading near record highs, bolstered by the Fed's low rates and asset purchases, with the Dow up 4.5 per cent this year and the S&P 500 up 9.5 per cent.

Declines in shares of Merck and those of Nike, down 1.3 and 0.8 per cent respectively, led the Dow lower.

"We are in some kind of corrective phase in the stock market but it's not the end of the world," David Rosenberg, chief economist and strategist of Canadian asset manager Gluskin Sheff, told Reuters, saying that valuations are expensive but not necessarily in bubble territory.

"I think we're still in a fundamental bull market," said Rosenberg. "I see the bond market more overvalued than the stock market."

Pacific Investment Managemen's Bill Gross told Bloomberg News that Treasury 10-year notes were "fairly valued" at 2.5 per cent.

A report showed that US jobless claims unexpectedly rose 11,000 to 315,000 in the week ended September 6, which included the Labor Day holiday. That was above the 300,000 expected by economists. Still, the data was taken with a grain of salt.

"It was during Labor Day holiday, so odds are that there are some seasonal adjustment problems," Omair Sharif, a US economist at RBS Securities in Stamford, Connecticut, told Bloomberg News. "Underlying labour demand remains very firm, and certainly that is going to help consumer spending going forward."

Separately the US Commerce Department released quarterly services spending data which showed healthcare spending took place at a much higher rate than anticipated, leading some economists to edge higher economic growth forecasts for the second quarter.

US Federal Reserve policy makers meet next week and all eyes will be on any clues with regards to the timing of an interest rate increase. The Fed is on track to end its monthly bond-buying program, currently at US$25 billion, in October.

Meanwhile, shares of Lululemon jumped, last up 14.4 per cent, after the maker of yoga apparel reported better-than-expected second-quarter results and lifted its full-year earnings forecast.

"While there is still much to be done, we are making meaningful progress on building a scalable foundation for our next phase of global growth," Laurent Potdevin, Lululemon's CEO, said in a statement.

In Europe, the Stoxx 600 ended the session with a 0.1 per cent decline from the previous close, as did Germany's DAX. France's CAC 40 slipped 0.2 per cent, while the UK's FTSE 100 Index dropped 0.5 per cent.