U.S. Stocks Fall While Commodities Gain, Treasuries Rise

Stocks Drop as Treasuries Gain After IMF Cuts Forecast
Traders work on the floor of the New York Stock Exchange in New York. Photographer: Scott Eells/Bloomberg

U.S. stocks slid amid concern corporate earnings will disappoint investors and after the International Monetary Fund cut growth forecasts. Oil surged as Mideast tensions flared; Treasuries rose and the euro weakened.

The Standard & Poor’s 500 Index decreased 1 percent to 1,441.48 at 4 p.m. in New York while the Stoxx Europe 600 Index lost 0.5 percent. The S&P GSCI gauge of 24 commodities was 1.6 percent higher as oil surged more than 3 percent after Turkey sent more weapons to the Syrian border. U.S. 10-year note yields dropped three basis points to 1.71 percent, while the dollar climbed versus 12 of its 16 major peers.

The U.S. third-quarter earnings season began with Alcoa Inc. today, the fifth anniversary of the S&P 500’s record close at 1,565.15. The IMF said the world economy will grow 3.3 percent this year, the slowest pace since the 2009 recession, and 3.6 percent next year. The euro slid versus most major peers as a meeting between German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras failed to reassure investors an accord is imminent on Greece’s next aid installment.

“There’s so much pessimism over earnings that there’s room for upside with any positive surprise,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $170 billion, said in a telephone interview. “Overall I think traders are too pessimistic. Even with the IMF economic numbers we got, those are still pretty good numbers. The IMF is forecasting global growth next year will be above 3 percent. That’s probably higher than what most people are fearing at the moment.”

Alcoa, Apple

The IMF’s forecasts were reduced from a July prediction of 3.5 percent for 2012 and 3.9 percent next year.

Alcoa climbed 1.2 percent in extended trading. After the close of exchanges, the largest U.S. aluminum producer reported earnings and sales that exceeded analysts’ estimates after reporting improved productivity at its primary metals and engineered-products units. The company reduced its forecast for global aluminum consumption this year by 1 percentage point to 6 percent.

Apple Inc. closed down 0.4 percent, paring an earlier plunge of 2.3 percent that extended its decline from a record $702.10 on Sept. 19 to more than 10 percent. Apple is likely to face “increasing challenges” as smartphone growth in developed markets slows, Nomura Holdings Inc. analyst Stuart Jeffrey said today.

Earnings Watch

Analysts’ average estimate for Apple’s fiscal fourth-quarter adjusted earnings have fallen as much as 15 percent this year to $8.92 a share from $10.55 in April, according to data compiled by Bloomberg. The company reports results on Oct. 25.

Technology shares in the S&P 500 slid 1.3 percent and were among the biggest drag in the index. Intel Corp., the world’s largest semiconductor maker, slipped 2.7 percent as Sanford C. Bernstein & Co. downgraded the shares. Edwards Lifesciences Corp. sank 21 percent after saying preliminary third-quarter sales would be lower than forecast. Netflix Inc. tumbled 11 percent after Bank of America Corp. lowered its rating to underperform.

Earnings at companies in the S&P 500 are projected to fall 1.7 percent in the third quarter in the first decline since 2009, according to analyst forecasts compiled by Bloomberg. Wagers that U.S. stocks will move in lockstep have dropped to a four-year low on speculation investors will focus on company results during earnings season.

Correlations Fade

The Chicago Board Options Exchange S&P 500 Implied Correlation Index has fallen 41 percent this year and reached 45.42 last week, the lowest level since October 2008, according to data compiled by Bloomberg. The gauge uses options to measure expectations about whether S&P 500 companies will move in unison.

The S&P 500 index closed yesterday at 1,455.88, less than 7 percent below the 2007 record. The measure has recovered after plunging 57 percent to a 12-year low on March 9, 2009, as the subprime mortgage crisis spread among financial firms. Consumer discretionary shares and financial firms, which advanced more than 150 percent, have led the gains.

Banks, lenders and insurers are still down 55 percent since October 2007, more than three times any other industry, data compiled by Bloomberg show. Even after doubling, U.S. stocks are trading at 14.7 times earnings, about a 10 percent discount to their five-decade average ratio, data compiled by Bloomberg show.

Treasury Auction

Treasuries rose the most in three weeks as the U.S. sale of $32 billion in three-year notes met record demand after the International Monetary Fund cut its economic forecasts, boosting the appeal of the safest assets. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was a 3.96, topping the previous high last month of 3.94 and an average of 3.56 for the previous 10 sales. Existing three-year yields were little changed at 0.34 percent.

European banks fell 0.9 percent as a group and were the biggest drag on the Stoxx 600 among 19 groups. Nationalized Spanish lender Bankia dropped 9.8 percent as Expansion reported that parent company BFA will book losses of more than 4.5 billion euros ($5.8 billion) this year.

Euro Weakens

The euro retreated against 13 of 16 major peers, weakening 0.7 percent to $1.2872, as a meeting between German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras failed to reassure investors an accord is imminent on Greece’s next aid installment.

The two leaders stood side by side at a press conference as protesters massed outside the Parliament building in a capital on virtual lockdown. Merkel has become the face of austerity in a country suffering a fifth year of recession, which many Greeks blame on German-led conditions attached to emergency loans.

European finance ministers met for second day in Luxembourg after yesterday declaring operational the permanent aid fund, the 500 billion-euro European Stability Mechanism.

Ten-year Spanish yields increased 11 basis points to 5.82 percent, while Italian rates were up three points at 5.11 percent.

Of the 24 commodities tracked by the S&P GSCI Index, 15 advanced. Crude rebounded 3.4 percent to $92.39 a barrel as Turkey sent more tanks and missile defense systems to the Syrian border yesterday. Brent oil increased 2.4 percent to $114.50. Brent touched a $23.10 a barrel premium to West Texas Intermediate oil traded in New York, the highest intraday level since Oct. 21, 2011, according to Bloomberg calculations of exchange data, before slipping back to $22.11.

Iran’s Currency

Iranian authorities are still seeking to stabilize the currency market days after a plunge in the value of the rial and protests that have left transactions by exchange houses almost at a halt. The central bank today announced a rate of 25,480 rials to the dollar for trading in the government’s newly opened exchange center, according to the state-run Mehr news agency. Today’s official rate is lower than yesterday’s, which the government had set at 25,550 rials against a dollar.

The Shanghai Composite Index rose 2 percent as investors bet the government will come up with steps to support the market. South African’s rand strengthened 1.4 percent to 8.7723 per dollar, climbing for the first time in five days, after the currency’s decline to the weakest in more than three years yesterday.

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