U.S. Stocks Slide Amid Small-Cap Selloff; Treasuries Rise

Photographer: Kiyoshi Ota/Bloomberg

Machinery on a construction site stand silhouetted against the city skyline in Tokyo. The fastest Japanese growth since 2011 failed to boost stocks in the region, after investors resumed a selloff of Internet and small-cap equities in New York. Close

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Photographer: Kiyoshi Ota/Bloomberg

Machinery on a construction site stand silhouetted against the city skyline in Tokyo. The fastest Japanese growth since 2011 failed to boost stocks in the region, after investors resumed a selloff of Internet and small-cap equities in New York.

U.S. stocks fell, giving benchmark indexes their biggest losses in a month, as a selloff in small-cap and Internet stocks spread to the broader market. Yields on 30-year Treasuries dropped to the lowest since June on stimulus bets while the yen gained.

The S&P 500 (SPX) Index slipped 0.9 percent at 4 p.m. in New York, the most since April 11. The Russell 2000 Index of small companies sank 0.7 percent, paring an earlier decline that brought the gauge down 10 percent from a March high. The yield on 30-year Treasuries dropped four basis points to 3.33 percent for a third day of declines. The Stoxx Europe 600 Index retreated 0.9 percent, erasing gains for the week. The yen climbed against all of its 16 major peers and the euro erased a loss against the dollar. Oil fell 0.9 percent and nickel slid 6.4 percent.

Economic reports showed industrial production in the U.S. unexpectedly declined in April, while the cost of living rose by the most in almost a year and U.S. jobless claims fell last week. Federal Reserve Chair Janet Yellen will speak after saying last week the U.S. economy still needs support. Wal-Mart Stores Inc. fell more than 2 percent after it forecast profit that missed estimates.

“The primary sentiment right now is cautious and nervous,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. “It’s more a matter of capital preservation than it is trying to generate returns. More people are looking to make sales and raise cash than they are to put cash to work on the weakness.”

Small Caps

The S&P 500 has dropped 1.4 percent since closing at an all-time high of 1,897.45 on May 13. The gauge advanced as much as 4.5 percent from a low on April 11 amid optimism about the economy and Federal Reserve stimulus. The Dow Jones Industrial Average declined 1 percent today, its largest retreat since April 10. The gauge also closed at a record on May 13.

Investors resumed selling Internet and small-cap shares after gains earlier in the week. The Russell 2000 has lost 3.3 percent in the past three days following a 2.4 percent rally on May 12. The gauge retreated 1.9 percent last week to close below its average price for the past 200 days for the first time since 2012. The Dow Jones Internet Composite Index lost 0.6 percent for a third day of declines. The gauge has plunged 18 percent from a 13-year high in March.

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility known as the VIX, jumped 8.2 percent to 13.17. The gauge had fallen 43 percent through yesterday since reaching a two-year high on Feb. 3.

Wal-Mart, Cisco

Wal-Mart fell 2.4 percent after it forecast second-quarter profit that missed analysts’ estimates as the company copes with slow sales in the U.S. Cisco Systems Inc. advanced 6 percent after forecasting fourth-quarter revenue that beat analysts’ projections.

About 76 percent of those that have reported results this season have beaten analysts’ estimates for profits, while 53 percent topped sales projections, data compiled by Bloomberg show.

Economic data today showed output at factories, mines and utilities decreased 0.6 percent after a 0.9 percent gain the prior month that was larger than previously reported. Manufacturing, which makes up 75 percent of total production, dropped 0.4 percent. The report contrasted with a higher-than-forecast reading on the Fed Bank of New York’s gauge of regional manufacturing.

Labor Department data showed the fewest Americans in seven years filed applications for unemployment benefits last week, while a separate report indicated the cost of living in the U.S. rose in April by the most in almost a year.

Yellen Speech

Yellen will address the U.S. Chamber of Commerce today after the market close. She said last week that the world’s biggest economy still requires a strong dose of stimulus. While data show “solid growth” in the second quarter, “many Americans who want a job are still unemployed” and inflation remains low, she said.

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.

David Tepper, founder of $20 billion hedge-fund firm Appaloosa Management LP, said he’s nervous about markets as the U.S. economy isn’t growing fast enough amid complacency by the Federal Reserve.

“The market is kind of dangerous in a way,” Tepper said yesterday at the SkyBridge Alternatives Conference in Las Vegas. “I think it’s nervous time,” he said, adding that markets may “grind higher” in the near term. Tepper, 56, said he’s more worried about deflation than inflation and that this is the time to preserve money.

European Stimulus

Treasuries rose as speculation of increased monetary accommodation in Europe added to pressure on traders betting on higher U.S. interest rates.

Data showed the euro-area recovery failed to gather momentum last quarter, as France unexpectedly stalled and economies from Italy to the Netherlands shrank. The region’s gross domestic product grew 0.2 percent, compared with 0.4 percent estimated in a Bloomberg survey. Professional forecasters revised down their estimates for euro-area inflation in a report released today by the ECB.

Euro-area policy makers are prepared to add more monetary stimulus if needed, European Central Bank Vice President Vitor Constancio said in Berlin. “We are determined to act swiftly if required and do not rule out further monetary policy easing,” he said.

Treasury Yields

Ten-year note yields fell five basis points to 2.50 percent and touched 2.47 percent, the lowest since Oct. 30. The 30-year yield reached 3.30 percent, the lowest level since June 17. The rate has declined 17 basis points over the past three days, the most since August.

“Central banks are still easing, and there are still a lot of shorts who were caught on the wrong side of the trade,” said Scott Graham, head of government-bond trading at Bank of Montreal’s BMO Capital Markets unit in Chicago, one of the 22 primary dealers that trade with the U.S. central bank. “We’ve had mixed to weak data in the U.S., Europe is not in much better shape, Asia has tons of question marks, there are still tensions in Russia.”

The yen rose as the data from Europe and the U.S. fueled concern about the pace of economic growth, increasing demand for Japan’s currency as a haven.

The yen climbed 0.3 percent to 101.55 per dollar. The Japanese currency rose 0.4 percent to 139.23 per euro. The shared European currency was little changed at $1.3710 after it weakened to $1.3648, the lowest level since Feb. 27.

Europe Stocks

More than four shares fell for every one that gained in the Stoxx 600, with trading volumes 44 percent higher than the 30-day average, according to data compiled by Bloomberg. The gauge pared its advance for the year to 3.1 percent after reaching the highest level since 2008 on May 13.

Hennes & Mauritz AB rose 3.7 percent as Europe’s second-largest clothing retailer reported higher April sales than analysts had anticipated. Deutsche Post AG lost 5.2 percent after Europe’s biggest postal company reported first-quarter profit that missed analysts’ estimates.

The S&P GSCI gauge of 24 commodities dropped 0.5 percent, the first decline in four days. Nickel has fallen as much as 14 percent in the past two days after rallying 15 percent last month because of an ore export ban in Indonesia.

West Texas Intermediate oil declined 0.9 percent to $101.50 a barrel. Production among OPEC’s 12 members rebounded from a five-month low in April, by 405,000 daily barrels to 29.9 million, largely because of a recovery in Iraqi output and increases by Saudi Arabia, the International Energy Agency said today.

Gold futures fell 0.9 percent to settle at $1,293.60 an ounce, the biggest drop since May 7.

Russian stocks fell 0.5 percent, ending six straight days of advances. Ukraine pushed on with an operation to dislodge separatists less than a day after Russia warned the violence could make it impossible to hold legitimate elections.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

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

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