U.S. Stock Futures Drop on Apple as Treasuries Retreat

U.S. stock-index futures retreated after Apple (AAPL) Inc.’s earnings and forecast trailed analyst estimates. Treasuries fell for a second day as an auction of $29 billion in seven-year notes drew the weakest demand since 2009.

Futures on the Standard & Poor’s 500 Index slipped 0.2 percent to 1,405.6 at 5:41 p.m. in New York after the gauge climbed 0.3 percent in the regular session. Ten-year Treasury yields climbed four basis points to 1.83 percent. The yen weakened against all 16 major peers on speculation Japan will add stimulus. The S&P GSCI Index of 24 raw materials increased 0.1 percent as gasoline halted its longest slump on record.

“Apple is a real market mover,” Richard Sichel, who oversees $1.8 billion as chief investment officer at Philadelphia Trust Co., said in a phone interview. “Investors have been so much earnings-driven that any disappointment will be reflected in the overall market.”

Apple, the world’s largest company by market value, dropped as much as 4 percent in extended trading, and was down 0.5 percent at 5:41 p.m. in New York. The company forecast profit and revenue that fell short of predictions for the crucial holiday quarter as costs rose and customers held off on iPad purchases before the release of a new model.

Amazon.com Inc. slid 1.5 percent after the market close as the biggest online retailer’s revenue missed estimates.

P&G Rallies

Among U.S. stocks, energy, health-care and consumer-staples companies led gains during regular trading as the S&P 500 snapped a two-day decline. Procter & Gamble Co., Pfizer Inc. and Chevron Corp. rose the most in the Dow Jones Industrial Average. P&G, the world’s largest consumer-products maker, rallied 2.9 percent after reporting first-quarter profit that topped analysts’ estimates as it slowed market-share losses and reduced manufacturing costs.

An S&P index of 11 homebuilders slid 1.7 percent after a National Association of Realtors report showed growth in existing home sales trailed economists’ forecasts, undermining optimism the housing market was improving. A Commerce Department report said orders for business equipment such as computers and communications gear stalled in September, signaling a slowdown in investment that may curb economic growth.

“The market is trying to digest a lot of reports,” said Walter Todd, who oversees about $940 million as chief investment officer of Greenwood Capital in Greenwood. “For this earnings season, while expectations were fairly low, certain names are turning out to be worse than expected.”

Best Buy

Cliffs Natural Resources Inc. tumbled 11 percent as the largest U.S. iron-ore producer reported third-quarter results that missed analysts’ estimates, while Best Buy Co. slumped 10 percent after saying profit will be “significantly” below last year’s results.

Another economic report today showed U.S. jobless claims decreased by 23,000 to 369,000 in the week ended Oct. 20 from a revised 392,000 the prior period, the Labor Department reported. The median forecast of 48 economists surveyed by Bloomberg called for a drop in claims to 370,000.

Investors are flocking to the options market at an unprecedented rate to place bets on S&P 500 volatility, a sign they see risks increasing after the calmest election year in two decades.

Outstanding contracts tied to the Chicago Board Options Exchange Volatility Index reached 9.01 million on Oct. 16, the highest level ever, according to data on open interest compiled by Bloomberg. Calls that pay should the VIX increase have almost tripled this year to 4.38 million, while puts climbed 52 percent to 2.14 million, the data show.

Election Year

Traders are snapping up VIX options after the gauge, which moves in the opposite direction of the S&P 500 about 80 percent of the time, lost 22 percent in 2012 through yesterday. That’s the largest annual drop for any election year since it was created in 1990, according to data compiled by Bloomberg. The VIX has climbed 22 percent since Oct. 18 as the equity gauge retreated 3.3 percent.

Treasuries extended losses as the auction’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.56, the least since May 2009. Benchmark notes dropped earlier after the Federal Open Market Committee ended a policy meeting yesterday without saying whether it will continue with Treasury purchases after the expiration of its so-called Operation Twist in December.

‘Cheapened Up’

“The securities cheapened up coming into the sale, and there is still a lot of uncertainty,” said William O’Donnell, head U.S. government bond strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, one of 21 primary dealers that trade with the Federal Reserve.

Yields on existing seven-year securities increased five basis points to 1.26 percent and touched 1.28 percent, the highest since August. Two-year note yields added two basis points to 0.31 percent and 30-year rates climbed three basis points to 2.98 percent.

U.S. Treasuries pared losses before the auction as Fitch Ratings reiterated that its negative outlook on the U.S.’s AAA credit ranking is unlikely to change before late 2013 as it waits to assess any deficit-reduction plans following this year’s elections. Fitch referred questions about U.S. downgrade speculation to its July statement, Brian Bertsch, a spokesman for the ratings firm, said in an e-mail to Bloomberg News.

The yen slid to its weakest level in four months against the dollar, depreciating 0.7 percent to 80.30 per dollar. It dropped 0.4 percent against the euro. The 17-nation European currency slipped 0.3 percent to $1.2939 and weakened against 13 of 16 major peers.

European Markets

About three shares gained for every two that declined in the Stoxx Europe 600 Index. BASF SE increased 0.8 percent after the world’s biggest chemical maker reiterated full-year goals for earnings and sales to gain. Unilever NV, the second-largest consumer-goods company, jumped 2.6 percent after third-quarter revenue grew, helped by sales in emerging markets. Logitech International SA sank 16 percent after the biggest maker of computer mice forecast lower revenue and operating profit in their second half than a year earlier.

German 10-year bunds fell, pushing the yield three basis points higher to 1.58 percent, while credit-default swaps dropped for a fifth day, sliding to the lowest since March 2010.

The pound strengthened against 15 of 16 major peers, gaining 1.1 percent against the yen. Britain exited a double-dip recession in the third quarter with the strongest growth in five years as Olympic ticket sales and a surge in services helped boost the rebound. Britain reported economic growth of 1 percent in the third quarter from the second, the first Group of Seven nation to release the data.

Emerging Markets

The yuan added 0.1 percent to 6.2417 versus the dollar, according to China Foreign Exchange Trade System, the strongest since the government unified the official and market exchange rates at the end of 1993.

The MSCI Emerging Markets Index rose 0.5 percent as Brazil’s Bovespa jumped 1.2 percent, India’s Sensex increased 0.3 percent and South Korea Kospi added 0.6 percent. The Shanghai Composite Index fell 0.7 percent as a leading indicator for China’s economy rose at a slower pace in September. Taiwan’s Taiex Index dropped 0.7 percent while Russia’s Micex Index slipped 0.4 percent.

Silver, gasoline and heating oil led gains in 10 of 24 commodities tracked by the S&P GSCI, while nickel, corn and wheat fell the most. Gasoline rose 2.8 percent on concern that Hurricane Sandy may threaten East Coast refineries and delay imports from Europe. Gasoline rebounded after tumbling 12 percent in the previous 10 days, the longest losing streak since trading began on the New York Mercantile Exchange in 1986.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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