U.S. stocks closed lower on Thursday, with the Dow industrials and S&P 500 extending losses into a fifth day, after data had the economy growing more rapidly than expected, adding to thoughts that the Federal Reserve would begin to reduce stimulus sooner than speculated.
"Unless something kills this economy, the Fed has to taper," said David Kelly, chief market strategist at J.P. Morgan Funds.
Friday's nonfarm payrolls report could have the unemployment rate falling from 7.3 percent, Kelly said. "We could see a rate as low as 7.0 percent. If that happens, it's going to put further pressure on the Fed to begin unwinding this program, and further increases the odds that it happens at the January meeting," he added.
"If I were a bookmaker at the Fed race track setting odds, the odds-on favorite is January, followed by December, with March the long odds," said Kelly, whose point of view differs from the March estimate offered by many.
Apple climbed as China Mobile stepped nearer to offering its subscribers iPhones. Aeropostale fell after the retailer reported a larger fourth-quarter loss than Wall Street expected. Safeway declined after Jana partners reduced its holdings in the grocery chain.
The Dow Jones Industrial Average fell 68.2 points, or 0.4 percent, to 15,821.5, with Microsoft leading blue-chip losses amid speculation that Alan Mulally would not be leaving Ford Motor to replace Steve Ballmer as chief executive of the software company.
"The stock market is taking a breather here, as a lot of investors and fund managers of various kinds would like to lock in gains," said Kelly, referring to a yearly advance that has the S&P 500 up more than 25 percent.
The S&P 500 declined 7.78 points, or 0.4 percent, to 1,785.03, with telecommunications leading the losses that included all of its 10 major sectors.
After wavering between small gains and losses, the Nasdaq lost 4.84 points, or 0.1 percent, to 4,033.16.
The CBOE Volatility Index (VIX), a gauge of investor uncertainty, rose 2.5 percent to just over 15.
For every share rising, nearly two fell on the New York Stock Exchange, where nearly 700 million shares traded. Composite volume topped 3.3 billion.
Thursday's economic reports had the U.S. economy expanding at a 3.6 percent pace, up from an initial estimate of 2.8, the Commerce Department said.
The Fed has said it would begin reducing the rate of its stimulus spending if the economic growth is deemed healthy enough to withstand the tapering. The central bank starts its next two-day policy meeting on Dec. 17, although most analysts have expected policy makers to hold off until the March Federal Open Market Committee meeting before starting to cut its $85 billion in monthly bond purchases.
"On balance, today's GDP report most likely will not be strong enough given the mix of factors behind the report to cause the Fed to begin to announce an immediate tapering of the Fed's bond buy program when the FOMC meets later this month," wrote Fred Dickson, chief investment strategist at Davidson Companies, in emailed commentary.
Separately, the Labor Department reported claims for unemployment benefits declined by 23,000 to 298,000 last week.
A third report had U.S. factory orders falling 0.9 percent in October.
On Wednesday, both the Dow and the S&P fell for a fourth session, with investors on shaky ground before Friday's release of the November jobs report, with the data seen as key in monetary decisions by the Fed.
In a speech delivered in Florida on Thursday, Fed Bank of Atlanta President Dennis Lockhart said when discussing cuts in stimulus, the central bank should be as specific as possible about the level of its asset purchases and the timing of its plans for tapering.
—By CNBC's Kate Gibson
Coming Up This Week:
Thursday: Earnings expected after the market close include Cooper Cos., Ulta Salon, Esterline Tech, Finisar, Veeva Systems and Zumiez.
Friday: Nonfarm payrolls report for November at 8:30 a.m. Eastern; unemployment rate for November at 8:30 a.m. Eastern; personal income for October at 8:30 a.m. Eastern; consumer spending for october at 8:30 a.m. Eastern. Core PCE price index for October at 8:30 a.m. Eastern and University of Michigan/Reuters consumer sentiment index for December at 9:55 a.m. Eastern. Earnings ahead of the open are expected to include Bank of Nova Scotia, American Eagle Outfitters and Big Lots.
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