(Corrects earnings growth under ‘Earnings Watch’ subhead of story published yesterday.)
U.S. stocks fell for a second day as retailers posted results that disappointed investors while trade data fueled concern the Federal Reserve may begin to reduce its bond purchases this year. Treasuries slid, while the euro gained as reports signaled European economies are recovering.
The Standard & Poor’s 500 Index lost 0.5 percent at 12:50 p.m. in New York while the Stoxx Europe 600 Index erased earlier gains to close down 0.4 percent. Ten-year U.S. note yields increased two basis points to 2.66 percent as the Treasury prepared to sell $72 billion of debt starting today. The euro advanced 0.3 percent to $1.3296 while Australia’s dollar rose 0.6 percent to 89.80 U.S. cents. Oil decreased 1.1 percent, reversing earlier gains, while gold futures lost 1.5 percent.
The U.S. trade deficit narrowed more than forecast in June to the lowest level since October 2009 as crude oil imports declined and American companies shipped more goods abroad, causing Goldman Sachs Group Inc. and Barclays Plc to raise their estimates for second-quarter economic growth. German factory orders and U.K. industrial production rose more than economists forecast in June, while the recession in Italy eased, reports showed today.
“You got the stock market back to all-time highs, so a prudent action is you sell the highs and buy the lows, and we’re a long way from the lows,” Tim Hartzell, who helps manage about $425 million as chief investment officer at Sequent Asset Management in Houston, said by phone. “We all have a fear of the third quarter and the third quarter could be a lot more volatile than traditionally given the politicized job interview for the Fed position.”
The S&P 500 extended its biggest two-day retreat since June. The index slipped 0.1 percent from a record yesterday after Dallas Fed President Richard Fisher said the central bank is closer to slowing $85 billion in monthly bond buying and warned investors not to rely on that stimulus. Atlanta Fed President Dennis Lockhart told Market News International that if economic growth and job creation pick up as expected, the Fed should proceed with the “removal” of its asset purchases.
Fed Bank of Chicago President Charles Evans, a voting member of the Fed’s policy committee who has consistently supported increased stimulus, speaks to reporters today in remarks that will be made public later. Evans said on May 20 that he’d like to see monthly employment growth of 200,000 or more for at least six months before judging the labor market substantially improved. Last week’s government jobs data showed the nation added 162,00 positions in July.
Among stocks moving today, American Eagle Outfitters Inc. fell 16 percent after the teen apparel chain yesterday said second-quarter profit was less than it forecast amid disappointing sales of women’s clothing and weak shopper traffic. Abercrombie & Fitch Co. lost more than 5 percent. CVS Caremark Corp. slid 2.2 percent after its forecast for full-year adjusted earning-per-share trailed analysts’ estimates.
International Business Machines Corp. (IBM) declined 2.2 percent today after saying it’s requiring the majority of its U.S. employees in the hardware unit to take a week off with reduced pay as it cuts costs amid slowing demand for products such as servers. Credit Suisse Group AG cut the company’s rating to the equivalent of sell, saying IBM has fewer ways to manage its portfolio to reach its earnings goals and has seen “gradual decline in the company’s competitive position across its industries.”
The S&P 500 closed at a record of 1,709.67 on Aug. 2, pushing its valuation to a three-year high. The benchmark index ended last week trading at 15.5 times estimated earnings, compared with an average of 13.9 over the last five years, data compiled by Bloomberg showed. The index is up 19 percent in 2013 and has rallied about 151 percent from its bear-market low in 2009.
“The U.S. market is a bit overbought at the moment,” said Enrico Carbonelli, a Lugano, Switzerland-based associate director of portfolio management at BSI SA, which oversees the equivalent of $93 billion. “In the coming month, we may see a little bit of a correction before going higher. There’s a bit of concern about the Fed tapering its stimulus, but bonds will probably suffer more than equities.”
Volume of exchange-listed stocks reached 4.65 billion yesterday, the slowest full-day trading this year, data compiled by Bloomberg show. Intraday price swings have narrowed, with fluctuations in the S&P 500 averaging 0.65 percent during the past 20 days through yesterday, the smallest change over a comparable period since Feb. 1, the data show.
Per-share adjusted earnings have increased about 3 percent for the 419 companies in the S&P 500 that posted results so far in the reporting season, with 73 percent beating the average analyst estimate. Analysts project companies in the gauge will increase their third-quarter earnings per share by 3.3 percent from a year earlier, and their profit in the fourth quarter by 9.9 percent, according to estimates compiled by Bloomberg.
The Stoxx 600 closed at a nine-week high yesterday following six straight days of gains. Losses today were led by commodity, utility and insurance companies as 14 of the index’s 19 industry groups retreated.
Salzgitter AG sank 12 percent as Germany’s second-largest steelmaker forecast a pretax loss of about 400 million euros ($530 million) this year amid a slump in demand. Lanxess AG slid 4.3 percent after the German chemical maker cut its profit outlook. Fresnillo Plc, the biggest primary silver producer, tumbled 11 percent in London trading as profit fell.
The volume of shares changing hands in Stoxx 600 companies was 6.2 percent lower than the 30-day average, according to data compiled by Bloomberg, and 11 percent lower for the S&P 500.
The MSCI Emerging Markets Index fell for the first time in four days, losing 0.9 percent. India’s Sensex Index dropped 2.3 percent and main gauges in Russia, Taiwan and the Philippines slid more than 1 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong lost 0.8 percent while the Shanghai Composite Index rose 0.5 percent.
The Aussie gained against 14 of 16 major peers as traders pared bets on a reduction in Australian borrowing costs after Reserve Bank Governor Glenn Stevens lowered the benchmark interest rate to a record and refrained from signaling there was room for more cuts. Australian bonds slid, with the 10-year yield rising 12 basis points to 3.71 percent.
Stevens cut the overnight cash-rate target by a quarter percentage point to 2.5 percent and said the RBA’s board “has previously noted that the inflation outlook could provide some scope to ease policy further.” Last month he said the outlook for prices “may provide some scope for further easing.”
New Zealand’s currency rose after the nation’s government said it expects the economy will avoid any immediate harm from the suspension of sales of some dairy products to China after the identification of a bacterial contamination that may cause botulism. The kiwi strengthened 1 percent to 79.01 U.S. cents after weakening for six straight days.
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