U.S. stocks tumbled, halting a three-day rally, and the euro reversed an early gain versus the dollar as investors watched for signs of progress in Europe’s efforts to stem the government debt crisis. Treasuries trimmed losses as the 10-year note’s yield capped the biggest increase over four days since January 2009.
The Standard & Poor’s 500 Index lost 2.1 percent to 1,151.06 at the 4 p.m. close in New York after climbing 0.8 percent earlier and rallying 4.1 percent over the previous three sessions. The euro weakened 0.2 percent to $1.3554, erasing a 0.8 percent advance. Ten-year yields rose two basis points to 1.997 percent, trimming a nine-point increase, and have climbed 27 points in four days. The S&P GSCI Index of commodities slumped 2.7 percent as copper sank 5.6 percent. Oil lost 3.8 percent after U.S. supplies increased last week.
Global equities and commodities were poised for their worst quarterly losses since 2008 amid concern Greece will default on its debt and contagion will drag the global economy into a recession. The European Commission is resisting a push to impose bigger writedowns on bank holdings of Greek sovereign debt than those previously agreed on, a European official said. The European Union today proposed a financial-transaction tax to take effect in 2014 and Spain and Italy extended temporary bans on short selling of financial shares.
‘Pins and Needles’
“The market is on pins and needles over the whole European debt problem,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., which oversees about $75 billion, said in an e-mail. “Every new rumor or little piece of news moves the market in one direction or the other a percent or two. It’s frustrating.”
All 10 main industry groups in the S&P 500 fell, with companies most-tied to economic growth including commodity producers and financial firms dropping the most. Freeport-McMoRan Copper & Gold Inc. tumbled 7.2 percent and Chevron Corp. lost 1.9 percent as commodities tumbled. JPMorgan Chase & Co. and Bank of America Corp. fell at least 3.5 percent, pacing declines among all 81 financial shares in the S&P 500. Amazon.com Inc. rose 2.5 percent after introducing its Kindle Fire tablet computer, taking aim at Apple Inc.’s iPad.
U.S. stocks gained earlier after a bigger-than-forecast increase in demand for capital goods eased concern the economy was slipping back into a recession. Bookings for goods like computers and communications gear, excluding military hardware and aircraft, climbed 1.1 percent in August and total demand for durable goods fell less than forecast.
$1 Trillion Rout
A four-day rout last week erased $1 trillion from U.S. equities amid concern Greek insolvency is inevitable and Europe can’t contain the damage. The decline left the S&P 500 trading at 12.4 times earnings in the past 12 months, 4.4 percent below its average valuation at the lowest point during the last nine bear markets, Bloomberg data shows.
The index rebounded since Sept. 22 amid optimism that European leaders were making progress in halting contagion from the debt crisis. Even as the S&P 500 rallied this week, futures on the VIX show investors expect the Chicago Board Options Exchange Volatility Index to remain at least 50 percent above its historical average of 20.5 through May, data compiled by Bloomberg show, amid demand for protection against more losses in stocks. Before the current rebound, the S&P 500 had fallen 14 percent from a three-year high at the end of April through Sept. 22.
The MSCI All-Country World Index has lost 17 percent this quarter, poised for the biggest drop since the aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in 2008. The global index is trading at 11.7 times reported earnings, near the lowest level since March 2009.
‘Very Attractive Level’
“We’ve reached a very attractive level of valuations, even in financials for those who have longer investment horizons,” said Pierre Mouton, a fund manager at Notz Stucki & Cie. in Geneva, who helps oversee $7.5 billion. “There are fantastic opportunities. A lot has been massacred.”
Treasuries trimmed some losses after the government’s $35 billion auction of five-year notes drew a record low yield of 1.015 percent. The 30-year bond yield climbed one basis point to 3.08 percent. The dollar increased against 13 of 16 major peers, rising more than 1.3 percent versus the Mexican peso, New Zealand dollar and Brazilian real.
Silver plunged 5 percent to lead losses in 23 of 24 commodities tracked by the S&P GSCI Index. The commodities gauge has slumped almost 10 percent since the end of June, headed for its worst quarterly loss since a 44 percent plunge in the fourth quarter of 2008.
Among European stocks, Man Group Plc sank 25 percent, the most since November 2008, after the world’s biggest hedge fund said its assets under management will decline by $6 billion amid “suppressed” demand for investment products.
Banks were the biggest drag on the Stoxx Europe 600 Index, which fell 1.1 percent. Austria’s Raiffeisen Bank International and Erste Group AG and Germany’s Deutsche Bank AG slid at least 3.8 percent to lead declines.
The London interbank offered rate, or Libor, that London-based banks say they charge each other for three-month dollar loans rose for a 14th straight day, climbing to a 13-month high of 0.36856 percent, according to data from the British Bankers’ Association.
German banks are resisting political pressure for them to accept larger writedowns, or “haircuts,” on their holdings of Greek government debt, a person briefed on the talks said. German lawmakers have called on lenders in recent days to accept a larger writedown than the 21 percent proposed by the Institute of International Finance, an industry lobby group, said the person, who declined to be identified because the talks are private. Banks are concerned the IIF agreement may unravel if they are forced to accept further losses, the person said.
The EU transaction-tax proposal would apply a fee of 0.1 percent on trading of stocks and bonds thoroughout the 27-nation bloc, with a 0.01 percent rate for derivatives contracts, the European Commission, said today in Brussels.
In European bond markets, yields on 10-year Greek debt fell for a second day, dropping 28 basis points to 23.04 percent. Rates on 10-year French, German, Italian and Spanish debt increased at least three basis points. The euro slumped to its lowest against the dollar shortly before 4 p.m. New York time, while the shared currency gained against 12 of its 16 major peers led by gains of more than 1 percent versus the real, Mexican peso and New Zealand and Australian dollars.
Finland’s parliament approved the expansion of Europe’s temporary rescue fund, bringing to nine the number of euro members to have ratified the mechanism. German lawmakers will vote on the EFSF tomorrow.
The MSCI Emerging Markets Index of stocks slipped 0.8 percent after surging 4.9 percent yesterday in its biggest rally in more than two years. Benchmark gauges in Argentina, Brazil, Mexico and South Africa fell more than 1 percent to lead declines among developing markets.