U.S. stocks erased early losses as the cheapest price-to-earnings valuation in six months overshadowed a drop in factory orders. Treasury yields rose from records, commodities reversed declines and the dollar fell.
The Standard & Poor’s 500 Index closed up less than 0.1 percent at 1,278.18 at 4 p.m. in New York after a 9.9 percent tumble from a four-year high in April dragged it to 12.9 times reported earnings, the lowest since November. Ten-year Treasury yields added seven basis points to 1.52 percent. The S&P GSCI gauge of commodities added 0.6 percent as oil snapped a four-day slump. Italian and Spanish bonds rose and the euro strengthened for a second day as European leaders agreed to discuss closer banking cooperation.
The S&P 500 rebounded today after slumping as much as 0.9 percent and extending its tumble since April 2 to more than 10 percent, a level that would have marked a “correction” had it held on a closing basis. The early slide was triggered when Commerce Department data showed U.S. factory bookings unexpectedly slid 0.6 percent in April in the first back-to-back declines in more than three years.
“It’s a function of things having gotten oversold and due for a rally at some point,” said Michael James, a managing director at Wedbush Securities Inc. in Los Angeles.
Telephone, consumer-discretionary and technology companies rose at least 0.5 percent to lead gains in the 10 main industry groups in the S&P 500, while industrial, financial and energy companies fell.
Home Depot Inc., Alcoa Inc. and Johnson & Johnson rose at least 0.9 percent to lead gains in the Dow Jones Industrial Average as the 30-stock gauge trimmed a drop of as much as 83.48 points to 17.11 points by the close, ending at 12,101.46.
JPMorgan Chase & Co., the largest U.S. bank by assets, slid 2.9 percent to $31, the lowest price since Dec. 19. Facebook Inc. declined 3 percent to $26.90, the social network’s lowest closing price since the stock started trading on May 18. Chesapeake Energy Corp. rallied 6 percent on plans to replace almost half its board under pressure from billionaire investor Carl Icahn.
A report last week showing the weakest U.S. hiring in 12 months erased the Dow’s advance for 2012 and pushed valuations in the S&P 500 to 19 percent below last year’s level.
The increase in the American jobless rate to 8.2 percent in May compounded signs that the economic recovery is stalling and sent the benchmark gauge for U.S. equities down 2.5 percent to 1,278.04 on June 1, almost 37 points below its level a year earlier.
An intensifying financial crisis in Spain or elsewhere in Europe has the potential to drive American stocks into a bear market, Goldman Sachs Group Inc.’s chief U.S. equity strategist said. While David Kostin’s mid-year forecast for the S&P 500 calls for a 3.7 percent gain to 1,325, the measure may fall to 1,125 should the situation in Europe worsen. That would give the S&P 500 a more-than 20 percent loss since its 2012 closing peak of 1,419.04 on April 2, reaching what’s considered the threshold of a bear market.
Treasuries fell for the first time in four days on speculation the U.S. economy won’t slow enough to justify keeping yields at the record lows set last week.
Valuation measures show Treasuries are at almost the most expensive levels ever. The term premium, a model created by economists at the Federal Reserve, was at negative 0.86 percent after closing June 1 at negative 0.94 percent. A negative reading indicates investors are willing to accept yields below what’s considered fair value.
The Stoxx Europe 600 Index slipped 0.5 percent, resuming losses following the U.S. factory data after earlier recovering from a 0.7 percent retreat. Carmakers, technology and chemical companies led declines.
Volkswagen AG and Daimler AG dropped at least 1.9 percent. Aker Solutions ASA, the Norwegian oil-services company, slumped to the lowest in four months. Vestas Wind Systems A/S plunged to a nine-year low after BlackRock Inc. cut its holding in the company to 4.02 percent.
Germany’s DAX Index slumped 1.2 percent, closing at its lowest level of the year. The IBEX 35 Index rallied 2.9 percent in Spain, rebounding from a nine-year low, as Prime Minister Mariano Rajoy’s call to boost efforts to project the region’s banks gathered support among European leaders.
Spain’s 10-year government yield lost 12 basis points to 6.41 percent. The similar-maturity German bund yield rose four basis points to 1.21 percent, after the rate fell to a record 1.127 percent on June 1.
Pressure built on German Chancellor Angela Merkel to back new ideas to resolve the debt crisis as Spain urged European leaders to bolster efforts to protect banks. Rajoy on June 2 added his voice to calls for a more robust “banking union” in Europe, lending his support for a centralized system to re-capitalize lenders. France’s new Finance Minister Pierre Moscovici said that aid for troubled European banks should come through the European Stability Mechanism rather than through governments.
Merkel’s spokesman said that Spain knows where to look for aid if it’s needed, giving no ground to Rajoy’s pleas.
The U.K., Irish and Greek markets were closed today for public holidays.
The 17-nation euro added 0.5 percent to $1.2494 after last week sliding to the weakest level in almost two years.
Oil rose for the first time in five days, climbing 0.9 percent to $83.98 a barrel in New York, as a weaker dollar helped boost commodities.
The Dollar Index, a gauge of the currency against six major peers, slipped 0.4 percent to 82.55 after last week touching the highest level since September 2010. The U.S. currency weakened against 12 of 16 most-traded counterparts.
Japanese and Chinese equity gauges slid into bear markets as China’s non-manufacturing industries expanded at a slower pace for a second month. Japan’s Topix Index fell 1.9 percent to the lowest since 1983 and the Hang Seng China Enterprises Index slid 2.6 percent.
The MSCI Emerging Markets Index slid 1.3 percent, falling to the lowest level since Nov. 25 as benchmark gauges in China, South Korea and Taiwan declined at least 2.7 percent to lead losses.
“It’s very easy just to get depressed,” Frances Hudson, global thematic strategist who helps manage $256.6 billion at Standard Life Investments in Edinburgh, said in a phone interview. “We’ve been having mixed data signals. If your time horizon is longer, you’re in a better position to work these things out. Then, you can step back from the noises today.”