MarketView for December 3

Summary

The Dow Jones Industrial Average and the S&P 500 indexes fell for a third straight day on Tuesday, dropping from record levels in a broad decline as investors took profits amid signs of a weak holiday shopping season. Equities have rallied recently, with the S&P 500 gaining for eight straight weeks and hitting a series of record highs. The benchmark index is up 25.9 percent so far this year.

Retail and consumer discretionary stocks were among the weakest of the day. For example, Amazon was down 2 percent to close at $384.66, making it one of the largest drags on the S&P 500.

Earlier-than-usual online holiday discounts were expected to have dampened Cyber Monday sales. Still, data firm comScore forecast that online sales hit $2 billion on "Cyber Monday," the highest since the firm began tracking such information.

Ford was down 2.9 percent to $16.56 while General Motors fell 2.5 percent to close at $38.14. the declines in the automakers' stocks were linked to concerns that pent-up demand would no longer support the current pace of sales gains beyond 2014.

Bucking the sector's weakness, Tesla Motors rose 16.5 percent to $144.70 on heavy volume after Morgan Stanley named it a "top pick." Tesla said on Monday that Germany's vehicle regulatory agency said it planned "no further measures" after reviewing fires in Tesla cars in the United States and Mexico.

Investors speculated that the Federal Reserve may move to trim its stimulus earlier than some had anticipated. Stronger-than-expected data on manufacturing and construction spending on Monday underscored views that the Fed may begin scaling back its stimulus of $85 billion in monthly bond purchases sooner than expected.

Many analysts still forecast the announcement will take place in March, but the Street is closely watching this week's jobs figures that will be released on Friday, for trends that could influence the Fed's thinking.

In an interview, John Williams, president of the San Francisco Federal Reserve Bank, said he expected the stimulus program to end sometime in 2014, and that he would be disappointed if it was still in effect in December 2014.

In company news, Yum Brands fell 2.7 percent to $75.61 after it said November sales at established KFC restaurants in China failed to grow despite a successful promotion. It forecast a return to earnings-per-share growth in 2014.

Apple rose 2.7 percent to $566.32 after UBS upgraded the iPhone maker's stock to "buy."

About 5.28 billion shares changed hands on the three major equity exchanges, according to BATS exchange data.

Higher Auto Sales

Major automakers reported their best domestic sales month in six and a half years in November as aggressive discounting and the continued popularity of big pickup trucks helped exceed Street projections.

The industry's annual sales pace reached 16.41 million vehicles last month, the best monthly showing since February 2007, according to industry research firm Autodata. This handily beat expectations for a rate of 15.75 million.

Nonetheless, shares of General Motors and Ford were down more than 3 percent over rising concerns that discounts signaled a return to the unhealthy practices that eroded industry profits in the years before the global recession of 2009.

There was also concern among investors that consumers' need to replace aging vehicles, which propelled U.S. light vehicle sales after the recession, would not support the current pace of sales gains in 2015 and beyond. November auto sales increased 8.9 percent, exceeding the year-to-date increase of 8.4 percent.

Manufacturers provided incentives averaging more than $2,500 per vehicle in November, TrueCar.com said. Automakers began offering aggressive deals in the second half of the month to take advantage of Black Friday shopping following Thanksgiving Day on November 28.

Incentives were particularly heavy in the midsize sedan segment, which includes Toyota's Camry and Honda's Accord. However, interviews and conference calls resulted in auto executives disputing concerns that the industry was overly reliant on incentives to spur sales in November, which was the strongest U.S. sales month of 2013.

GM ended the day down 3.3 percent to $37.81 while Ford was off 3.2 percent to $16.52.

On the same day the industry posted its strong results, a federal judge ruled the city of Detroit, once the cradle of the auto industry and now a symbol of urban decay and mismanagement, was eligible for bankruptcy.

Executives and analysts said the Detroit automakers were unlikely to revert to offering outsized incentives. Those unhealthy practices were a factor in GM and its smaller rival Chrysler Group taking federal bailouts in 2009 to survive. Vehicle sales bottomed in 2009 at 10.4 million. They rose to 14.5 million last year, and GM has said U.S. auto sales would likely finish at 15.6 million this year.

Monthly sales are regarded as an early indicator of the economy's health. The auto industry has held up better than the broader economy because of easier access to credit and consumers' need to replace aging vehicles. The average vehicle on the road in the United States is more than 11 years old.

GM emphasized that it was disciplined in its approach to incentives. Executives at the automaker said incentives as a percentage of average vehicle prices held steady at around 10 percent during the first nine months of the year.

Ford said the midsize car segment accounted for 14.5 percent of the industry last month, down one percentage point from November 2012. The second-largest U.S. automaker also said the weak yen allowed Japanese automakers to offer deals.

Honda was alone among major automakers in reporting flat sales and missing analyst estimates.

Chrysler said its November sales were up 16 percent, while GM reported a 14 percent increase. Ford sales rose 7 percent. Sales rose 10 percent at Toyota and 11 percent at Nissan. Big trucks were the best-selling vehicles at each of the Detroit automakers.

Ford's industry-leading F-series pickup outsold the company’s entire lineup of passenger cars, rising 16 percent to 65,501. Combined sales of GM's Chevrolet Silverado and GMC Sierra were up 15 percent at 48,748. Chrysler's Ram pickup gained 22 percent to 29,635.

Meanwhile, in the race for bragging rights as biggest seller of luxury vehicles, Daimler's Mercedes brand holds a lead of more than 7,600 vehicles over BMW after a 13 percent sales increase in November.