Stocks Erase Gains, Treasuries Pare Losses After Fed

U.S. stocks fell, erasing early gains, and commodities dropped for a third day as the Federal Reserve said growth in employment remains slow and strains in financial markets continue to pose risks to the economy. Oil slid to a three-month low after American supplies increased.

The Standard & Poor’s 500 Index lost 0.3 percent to close at 1,408.75, erasing a 0.5 percent early gain to close at the lowest level since Sept. 5. Ten-year Treasury yields rose three basis points to 1.79 percent. Oil dropped for a fifth day, trading below $86 a barrel, and gasoline extended its longest slump on record. The euro lost 0.2 percent to $1.2968 after German manufacturing and business confidence missed estimates.

Earnings reports depicting a slowing global economy dragged the S&P 500 to a plunge of more than 3 percent over the three sessions prior to today, the benchmark gauge’s biggest drop since June. The Fed’s statement today said the economy is still growing modestly and unemployment remains elevated as it maintains $40 billion in monthly purchases of mortgage-backed securities aimed at spurring the three-year expansion.

“It’s been a pretty lackluster market,” Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview. “There’s nothing new or encouraging in terms of the Fed’s outlook regarding the economy. In addition to that, top line growth of companies has been disappointing.”

Sales Miss

Revenue has trailed estimates at 60 percent of the 187 companies in the S&P 500 that released quarterly results so far in the earnings season, according to data compiled by Bloomberg. Sales have increased 1.2 percent for the group while earnings have declined 0.5 percent.

Stocks rose in early trading as a report signaled America’s housing market is improving and a survey showed a smaller contraction in China’s manufacturing, boosting confidence in the world’s second-biggest economy.

Among U.S. stocks, Corning Inc. tumbled 9.4 percent, the most since January, after reporting earnings, leading a drop in technology shares. Netflix Inc. plunged 12 percent as it cut its forecast for domestic growth.

Facebook Inc. (FB), the biggest social networking website, surged 19 percent after reporting sales that topped analysts’ estimates, allaying concerns over its ability to make money from mobile ads. Dow Chemical Co., the largest U.S. chemical maker by sales, climbed 4.7 percent after saying it will cut about 2,400 jobs and shut 20 manufacturing plants to reduce annual costs by $500 million.

Builders Rally

An S&P gauge of 11 homebuilders rallied 1 percent. Purchases of new homes in the U.S. climbed 5.7 percent to a 389,000 annual pace in September, topping the median estimate in a Bloomberg survey of 75 economists for an increase to 385,000.

The S&P 500 will advance 5 percent to about 1,480 over the next two weeks before the rally ends and stocks fall, according to Tom DeMark, the creator of indicators to show turning points in securities.

The gain would push the benchmark index above the 2012 intraday high of 1,474.51 reached on Sept. 14 before buyers are exhausted, said DeMark, whose prediction last year that the S&P 500’s decline would stop at 1,076 proved prescient when the index bottomed at 1,074.77 on Oct. 4, 2011. The advance will fizzle, with the S&P 500 heading for a potential decline of 12 percent to 17 percent, he said in an e-mailed statement.

‘Unfinished Business’

“There is still some unfinished business upside that will totally surprise and shock most market followers,” DeMark, the founder of Market Studies LLC, wrote. The S&P 500 “rally is a solo move in a sense that the overall market trend has been down since Sept. 14,” he wrote.

Three shares advanced for every two that declined in the Stoxx Europe 600 Index. SAP AG rallied 4.2 percent after the biggest maker of business-management software reported third- quarter software license revenue that beat analyst estimates and boosted a sales forecast. Volvo AB (VOLVB) fell 1.9 percent after the truckmaker’s third-quarter profit missed analyst estimates.

Oil declined 1.1 percent to $85.73 a barrel, the lowest since July 10, after the U.S. Energy Department said supplies rose three times as much as expected last week, gaining 5.9 million barrels to 375.1 million. An increase of 1.8 million was expected. Gasoline slipped 0.2 percent to $2.603 a barrel.

The average nationwide price for regular gasoline at the pump declined 2.3 cents to $3.625 a gallon yesterday, the lowest since Aug. 5, according to AAA, the largest U.S. motoring organization.

Euro Weakens

The euro declined against 11 of its 16 major counterparts, slipping 0.2 percent versus the yen. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 100.0 this month from 101.4 in September. Economists had predicted an increase to 101.6, according to a Bloomberg survey.

Euro-area services and manufacturing output contracted more than economists forecast in October. A composite index based on a survey of purchasing managers fell to 45.8 from 46.1 in September, London-based Markit Economics said. Economists had forecast a reading of 46.5, the median of 18 estimates in a Bloomberg survey showed. A level below 50 indicates contraction.

Europe Risks

“The weak data today highlighted the risk that the crisis could deteriorate further,” said Matteo Regesta, a senior interest-rate strategist at BNP Paribas SA in London. “Germany, which is a locomotive of growth in the euro region, is slowing and that is not good news for peripheral bonds. It needs growth to get out of the problem.”

The yield on Germany’s 10-year bund decreased two basis points to 1.56 percent. The government sold 3.33 billion euros (4.3 billion) of debt due September 2022 after receiving 5.06 billion euros of bids, compared with a maximum 4 billion-euro target.

The Hong Kong Monetary Authority sold the city’s currency for the second day in a week yesterday to halt appreciation and maintain a 29-year-old peg to the U.S. dollar. The currency was at HK$7.7503 versus the greenback, near the top end of its allowed trading range of HK$7.75 to HK$7.85, according to data compiled by Bloomberg.

The MSCI Emerging Markets Index (MXEF) slipped 0.3 percent, with gauges in South Korea, Thailand and the Philippines falling at least 0.6 percent. Russia’s Micex Index lost 0.4 percent, while the Shanghai Composite Index gained less than 0.1 percent. The Hang Seng China Enterprises Index of companies listed in Hong Kong and Hungary’s BUX Index fell at least 1 percent as trading resumed after holidays.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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