Stocks tumbled the most this year and the euro slid while Spanish bond yields surged amid renewed concern about Europe’s debt crisis. U.S. Treasuries rose, while oil fell after the longest stretch of weekly gains since 2004.
The Standard & Poor’s 500 Index (SPX) dropped 1.2 percent to 1,495.71 at 4 p.m. in New York, falling from a five-year high, and the Stoxx Europe 600 Index closed 1.5 percent lower. The euro declined 0.9 percent to $1.3516, retreating from the strongest level since November 2011. Spanish 10-year yields jumped 23 basis points to 5.44 percent and Italy’s rates added 14 points. Ten-year U.S. yields lost six basis points to 1.96 percent. Oil sank 1.6 percent to $96.17 a barrel, the most in two months, after capping an eighth straight weekly gain.
Concern about Europe’s debt crisis was renewed as Spanish Premier Mariano Rajoy faced opposition calls to resign amid contested reports about illegal payments, while Deutsche Bank AG said this year’s rally in Italian and Spanish bonds may falter as Italy’s Silvio Berlusconi narrowed the front-runner’s lead before elections this month. In the U.S., growth in factory orders trailed economist estimates.
“The market is realizing that there are still substantial risks out there, especially on the political front,” said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “The dynamics in Spain are devastating because they have the potential to cause a lot of damage. If in the worst case we would get a new election in Spain, this would be a real shocker for the market.”
All 10 groups in the S&P 500 fell, sending the benchmark gauge to its biggest drop since Nov. 14 and trimming its year- to-date gain to less than 5 percent. Gauges of technology, consumer-discretionary and financial shares lost more than 1.2 percent to lead declines. Travelers Cos., Merck & Co. and Bank of America Corp. fell at least 2 percent for the biggest declines in the Dow Jones Industrial Average (INDU), which retreated 129.71 points to 13,880.08 after climbing above 14,000 last week for the first time since 2007.
McGraw-Hills Cos. tumbled 14 percent as the U.S. Justice Department planned to file a civil lawsuit against its Standard & Poor’s unit based on ratings in 2007 of certain collateralized debt obligations. Moody's Corp. tumbled 11 percent. Wal-Mart Stores Inc. fell 1.2 percent as JPMorgan Chase & Co. cut its rating on the world’s largest retailer.
“It’s a little bit of a breather,” Joseph Veranth, chief investment officer at Dana Investment Advisors in Brookfield, Wisconsin, said by telephone. The firm manages $3.8 billion. “In Europe, Italian, Spanish and Portuguese bond yields are up a bit there and that’s partly causing it. Nevertheless, the market in the U.S. has been strong since the beginning of the year and we don’t see a whole lot to change that trend.”
Thirteen companies in the index are due to report results today, including Yum! Brands Inc. Of the 259 companies that have released earnings so far in the reporting season, 73 percent topped analysts’ profit projections, according to data compiled by Bloomberg.
Stocks in the world’s developed nations posted the best start to a year in two decades, a sign the global economy is poised to accelerate after contractions in Japan, the U.S. and Europe, if history is a guide.
The MSCI World Index of stocks in 24 markets rose 5 percent in January, the most since 1994, as individual investors pumped record deposits into mutual funds, U.S. profits increased for an 11th quarter, central banks kept interest rates at record lows and growth from Europe to China improved. The last two times stocks gained this much in January, world gross domestic product expanded at least three times the 2.4 percent that economists forecast for 2013, according to data compiled by Bloomberg.
While market strategists say that equities have already recorded most of this year’s gains, bears who predicted declines at this point in 2012 only to see the S&P 500 close up 13 percent, are being overlooked. Bulls say the rally is just getting started after U.S. investor sentiment rose to a two-year high and billionaire Warren Buffett offered to buy the parent of the New York Stock Exchange.
The Stoxx 600 (SXXP) fell the most since October and trimmed its 2013 advance to 1.5 percent.
Spain’s IBEX 35 Index tumbled 3.8 percent, the most since September, and Italy’s FTSE MIB Index plunged 4.5 percent in its biggest slide since August. Banco Santander SA, Spain’s largest bank, sank 5.7 percent as Rajoy denied corruption allegations. UniCredit SpA, the biggest lender in Italy, sank 8.3 percent in the largest drop since June. Julius Baer Group Ltd. fell 3.1 percent after the wealth manager reported declining revenue margins.
Royal Imtech NV tumbled 48 percent in Amsterdam today, the biggest drop since at least 1989, as the Dutch provider of infrastructure for stadiums in last year’s London Olympics forecast writedowns of at least 100 million euros ($136 million) because of alleged irregularities at its Polish business. Swatch Group AG (UHR), the largest maker of Swiss timepieces, climbed 5 percent after reporting profit that exceeded analysts’ estimates.
The euro weakened against all 16 major peers, sliding 1.6 percent versus the yen, after completing an eighth consecutive weekly advance in the five days through Feb. 1. The Dollar Index, a gauge of the currency against six major peers, increased 0.6 percent.
Spain’s 10-year yield climbed to the highest level since December and yields on similar-maturity Italian debt rose 14 basis points to 4.47 percent. The nations’ bonds had positive returns for six straight months through the end of January, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
Strategists from Commerzbank recommend reducing holdings of Spain’s debt, while analysts at BNP Paribas SA, Deutsche Bank AG, Royal Bank of Scotland Group Plc and Morgan Stanley also said the rally in higher-yielding euro-area sovereign bonds may falter.
The S&P GSCI Index retreated 0.8 percent as 16 of its 24 commodities declined, with coffee, oil and cotton dropping at least 1.5 percent to lead losses. Platinum futures rose to the highest in almost 17 weeks as output declined at Anglo American Platinum Ltd., the world’s biggest producer. Palladium extended a rally to the highest since September 2011, and gold gained.
The MSCI Emerging Markets Index (MXEF) lost was little changed. Russia’s Micex Index closed down 0.8 percent as oil declined. Brazil’s Bovespa index slid 1.3 percent and India’s Sensex gauge lost 0.2 percent. The Shanghai Composite Index added 0.4 percent after China’s service industries grew at the fastest pace since August, with volumes 31 percent more than the 30-day average.
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