S&P 500 Drops Amid Small-Cap Selloff While Bonds Rally

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Developers led equity gains in Hong Kong and Shanghai after China’s central bank called on the nation’s biggest lenders to accelerate the granting of mortgages as property prices cool. Close

Developers led equity gains in Hong Kong and Shanghai after China’s central bank called... Read More

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Photographer: Brent Lewin/Bloomberg

Developers led equity gains in Hong Kong and Shanghai after China’s central bank called on the nation’s biggest lenders to accelerate the granting of mortgages as property prices cool.

U.S. stock indexes slumped from all-time highs as a selloff in small-cap and Internet companies resumed. Treasuries rose with emerging-market shares on speculation central banks will push ahead with stimulus efforts.

The Standard & Poor’s 500 Index fell 0.5 percent at 4 p.m. in New York, after climbing above 1,900 for the first time yesterday, while the Russell 2000 Index of small companies tumbled 1.6 percent today. The Dow Jones Internet Composite Index lost 1.2 percent. Ten-year Treasury yields dropped six basis points to 2.55 percent, the lowest since October. The MSCI Emerging Markets Index advanced 1 percent as a gauge of Chinese shares in Hong Kong jumped 1.4 percent. Copper jumped 1.3 percent and oil rose 0.5 percent.

The People’s Bank of China called on the nation’s biggest lenders to accelerate the granting of mortgages. European Central Bank policy makers said they’re preparing measures against low inflation. Bank of England Governor Mark Carney signaled policy makers may wait until 2015 to raise interest rates because recovery can continue without fueling inflation.

“The market is taking a bit of a breather,” Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said in a phone interview. “Earnings have been OK, but now we’re in a slow period. We’re going to have to see earnings pick up to get us to the next level on stocks.”

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Retail sales in the U.S. grew a less-than-projected 0.1 percent in April, fueling speculation that slower economic growth will keep a lid on inflation. Close

Retail sales in the U.S. grew a less-than-projected 0.1 percent in April, fueling... Read More

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Photographer: Patrick T. Fallon/Bloomberg

Retail sales in the U.S. grew a less-than-projected 0.1 percent in April, fueling speculation that slower economic growth will keep a lid on inflation.

All-Time Highs

The S&P 500 (SPX) rebounded 4.5 percent from its low on April 11 through yesterday, recovering declines after a selloff in technology and small-cap stocks overshadowed optimism about the strength of the economy. Both the S&P 500 and the Dow ended at records yesterday.

The Russell 2000 has dropped 2.7 percent in two days, after a 2.4 percent rally on May 12. The gauge is down 8.5 percent from a March high, and last week closed below its average price for the past 200 days for the first time since 2012.

The Dow Jones Internet Index lost 1.2 percent, as Groupon Inc. sank 4.4 percent to halt four days of gains. The gauge has plunged 17 percent from a 13-year high in March.

“There’s potential for people to take profits as we reach this record-high area,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said in a phone interview. “When you get these run-ups, people start to look at economic data, and we haven’t exactly had a great run over the last month. People were expecting a pickup following a tough winter.”

Treasury Yields

The yield difference between two- and 10-year Treasury notes, or yield curve, shrank for a second day. The spread decreased as much as six basis points to 217 basis points, after contracting on May 2 to 214 basis points, the least since July 5. A flattening yield curve usually means investors are betting on slower economic growth.

“Treasury yields are dropping, which is running counter to the view that rates are headed higher,” Schultz said. “That’s given people concern that maybe the economy may not be as strong as they thought. We’ll have to see what happens on the geopolitical and economic front.”

Federal Reserve Chair Janet Yellen will speak tomorrow after saying last week the world’s biggest economy still requires a strong dose of stimulus. She told U.S. lawmakers that while data show “solid growth” in the second quarter, “many Americans who want a job are still unemployed” and inflation remains low.

Three rounds of monetary stimulus have helped fuel economic growth, sending the S&P 500 surging as much as 180 percent from its 2009 low.

ECB Stimulus

European bonds rallied on speculation the region’s central bank will introduce a range of policy measures to boost stimulus.

“We could cut interest rates once again,” ECB Executive Board member Peter Praet said in an interview with Germany’s Die Zeit. “Negative interest rates are a possible part of such a combination of measures.”

The rate on Germany’s 10-year yield slipped five basis points to 1.37 percent and the rate on French 10-year bonds fell seven basis points to 1.81 percent, the least in a year. Italian 10-year yields slid three basis points to 2.91 percent after dropping to a record 2.89 percent on May 9.

“It’s the anticipation of QE in Europe that’s driving the bus here,” said Thomas Roth, senior Treasury trader in New York at Mitsubishi UFJ Securities USA Inc. “There are other signs that the market is looking at, other than the data.”

U.K. government bonds advanced for a second day, pushing 10-year gilt yields down 10 basis points to 2.58 percent, the lowest since October, as data showed weekly earnings rose at a slower pace than economists estimated in the three months through March. The pound weakened 0.4 percent to 81.77 pence per euro after appreciating to 81.27 pence, the strongest level since Jan. 7, 2013.

Emerging Markets

All 10 industry groups advanced on the MSCI Emerging Markets Index as the gauge climbed for a third day, reaching the highest level since Oct. 31.

The People’s Bank of China told 15 banks yesterday to “improve efficiency of service, give timely approval and distribution of mortgages to qualified buyers,” according to a statement posted on its website. It also urged lenders to give priority to families buying their first homes and strengthen their monitoring of credit risks.

Russia’s Micex Index added 0.3 percent for a sixth day of gains, the longest winning streak since September. The ruble rose 0.5 percent per dollar.

‘Civil War’

Ukraine urged Russia to condemn separatists in its eastern regions after seven government troops died in an ambush, as Russian Foreign Minister Sergei Lavrov said Ukraine “is as close to civil war as you can get.”

Russia has “no intention” of sending its troops anywhere, Lavrov said in an interview today with Bloomberg Television at the Foreign Ministry building in central Moscow. While holding Russia accountable for Ukraine’s presidential election on May 25 is “ridiculous,” the vote can’t be legitimate if it’s impeded by fighting, he said.

The Stoxx Europe 600 Index slid 0.1 percent after the gauge closed at a six-year high yesterday.

Mediaset SpA fell 6.6 percent after the Italian broadcaster controlled by former Prime Minister Silvio Berlusconi posted a quarterly loss on weak demand for advertising. Compass Group Plc jumped 1.6 percent. The world’s biggest catering company said it will return 1 billion pounds ($1.7 billion) to shareholders after announcing an increase in first-half sales.

Gold, Oil

The S&P GSCI gauge of 24 commodities advanced 0.5 percent. Copper climbed to $6,976 a metric ton. China is the biggest buyer of the metal. Gold futures rose 0.9 percent as mounting political unrest in Ukraine boosted demand for the metal as a haven asset. Silver jumped 1.2 percent.

West Texas Intermediate oil advanced 0.7 percent to $102.37, the highest level in three weeks, as a government report showed that crude stockpiles fell at Cushing, Oklahoma. Inventories at the delivery point for WTI futures shrank 592,000 barrels last week, the Energy Information Administration said. Total inventories increased.

The yen gained 0.4 percent to 101.87 per dollar and 0.3 percent to 139.72 per euro, the strongest level since March 4. Europe’s shared currency was little changed at $1.3715.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Stephen Kirkland in London at skirkland@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland, Stephen Kirkland

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