U.S. stocks sank, sending the Standard & Poor’s 500 Index to its biggest loss in three months, amid concern that global stimulus measures won’t be enough to boost growth. Oil fell and the dollar reversed earlier losses.
The S&P 500 slid 1.1 percent to 1,441.59 at 4 p.m. in New York, erasing an early advance of 0.4 percent. Oil retreated 0.6 percent to a seven-week low of $91.37 a barrel. The Dollar Index (DXY), a gauge of the currency against six major peers, rose 0.2 percent to 79.664 after retreating 0.2 percent earlier. Ten-year Treasury yields fell four basis points 1.67 percent after earlier rising two points.
U.S. equities turned lower after the S&P 500 rose as high as 1,463.24, within three points of its best closing level since December 2007. Federal Reserve Bank of Philadelphia President Charles Plosser said the new bond-buying plan announced by the Fed this month probably won’t boost growth or hiring and may jeopardize the central bank’s credibility. Equities rallied in morning trading as reports on consumer confidence and home prices topped economists’ estimates.
“Things won’t get better as fast as people think they will,” Malcolm Polley, who manages $1.1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania, said by phone. “The Fed’s actions are not going to lead to higher growth.”
Caterpillar Inc. sank more than 4 percent to lead losses in the Dow Jones Industrial Average (INDU) after the world’s biggest maker of construction and mining equipment cut its forecast for 2015 earnings. Staples Inc., the largest U.S. office supplies chain, dropped 4.5 percent on plans to close stores. Red Hat Inc. retreated 4.3 percent after the largest seller of the open- source Linux operating system reported profit that missed analysts’ estimates and pared its sales forecasts.
Stocks started the session higher after the Conference Board’s sentiment index increased to 70.3 this month from 61.3 in August, exceeding the most optimistic projection of economists in a Bloomberg survey. The S&P/Case-Shiller index of property values in 20 cities increased 1.2 percent from July 2011, the biggest 12-month advance since August 2010. The median forecast of 24 economists surveyed by Bloomberg called for a 1.05 percent gain.
The S&P 500 has erased almost all its gains since the Federal Open Market Committee said Sept. 13 that it will undertake a third round of quantitative easing by purchasing mortgage-backed securities at a pace of $40 billion per month until labor markets “improve substantially.” Policy makers are using unconventional tools to attack a jobless rate stuck above 8 percent since February 2009.
Economic research indicates that additional asset purchases are “unlikely to reduce long-term interest rates by a significant amount” and that lowering rates “by a few more basis points” won’t spur growth and hiring, said Plosser, who doesn’t have a vote on policy this year. The U.S. economy is growing “at a moderate pace” and probably will expand by about 3 percent in 2013 and 2014, he said.
“We are unlikely to see much benefit to growth or to employment from further asset purchases,” Plosser said in the text of a speech prepared for delivery today at the Fed bank in Philadelphia. “Conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed’s credibility.”
Both the S&P 500 and the Dow average are trading near their all-time highs of October 2007. The Dow needs to rise about 5.3 percent to reach its peak of 14,164.53, while the S&P 500 needs an increase of about 8.6 percent to reach its record of 1,565.15.
While more U.S. companies have lowered their earnings projections than raised them this month, there hasn’t been an acceleration in revisions as the third quarter comes to an end. For every one company that raised its estimates in the past 20 trading days, 1.9 cut theirs, according to data compiled by Bloomberg. The ratio has averaged 1.4 since Aug. 1, less than the 2.1 mean since 2000, Bloomberg data show. It’s down from the almost four-year high reached on July 23, when eight companies cut forecasts for every one that boosted them.
The euro slipped 0.2 percent to $1.2903 as it weakened against 12 of 16 major peers. Spain sold 4 billion euros ($5.2 billion) of three- and six-month bills, while demand dropped at the sale of Italy’s notes.
Greece faces a financing gap that won’t be solved by budget measures being discussed, International Monetary Fund Managing Director Christine Lagarde said yesterday. Nobel Prize-winning economist Joseph Stiglitz said euro members will have to share debts and speed the implementation of a banking union to prevent a situation in which “the whole system falls apart.”
The cost of insuring European corporate debt rose for a second day, with the Markit iTraxx Crossover Index of credit- default swaps on 50 mostly junk-rated companies climbing 22 basis points to 553.
The Stoxx Europe 600 Index (SXXP) increased 0.4 percent today and has rallied 18 percent from this year’s low on June 4 as European Central Bank policy makers agreed to implement an unlimited bond-buying program and the Fed unveiled its third round of quantitative easing.
Telekom Austria AG sank 7.2 percent to an 11-year low after cutting its dividend. Continental AG sank 4 percent as Schaeffler AG sold a 10.4 percent stake in the tire producer. Standard Chartered Plc slipped almost 1.6 percent after a report that the bank’s largest shareholder talked to potential buyers for its holding. Daily Mail & General Trust Plc (DMGT), publisher of the Daily Mail newspaper, advanced 1.5 percent after saying full-year results will be in line with analyst estimates.
The MSCI Emerging Markets Index (MXEF) retreated 0.4 percent. Russia’s Micex Index (INDEXCF) lost 0.5 percent, while Brazil’s Bovespa sank 2.3 percent for its biggest drop on a closing basis in two months. The Hang Seng China Enterprises Index of mainland companies traded in Hong Kong retreated 0.2 percent and South Korea’s Kospi index lost 0.6 percent.
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