Stocks tumbled, with European shares snapping a five-day rally and U.S. benchmark indexes reaching one-month lows, as improving economic data triggered losses in government bonds that sent Treasury yields to two-year highs. Oil, gold and silver rallied.
The MSCI All-Country World Index lost 0.9 percent at 4 p.m. in New York. The Standard & Poor’s 500 Index slid 1.4 percent, the most since June, as Cisco Systems Inc. and Wal-Mart Stores Inc. tumbled after forecasts disappointed investors. The 30-year Treasury yield added 6.5 basis points to 3.82 percent. The Bloomberg U.S. Dollar Index erased earlier gains to drop 0.5 percent while the pound strengthened after U.K. retail sales jumped more than forecast. The S&P GSCI gauge of 24 commodities added 0.8 percent with oil rallying as violence in Egypt fanned concern about Middle East supplies.
U.S. jobless claims unexpectedly dropped last week to the lowest level in almost six years, Labor Department data showed today, fueling concern that the Federal Reserve will begin to reduce its bond purchases next month. In Europe, Zurich Insurance Group AG and Oriflame Cosmetics SA dropped as second-quarter earnings that missed estimates. Egypt’s army-backed government declared a state of emergency following police clashes with Islamist protesters, as deaths from the crackdown passed 500.
“With weaker earnings, higher interest rates and geopolitical concerns, risk assets like stocks don’t do well,” Jim Russell, senior equity strategist for U.S. Bank Wealth Management, said in an interview from Cincinnati. His firm oversees $110 billion. “The jobless claims numbers were sufficiently strong that taper fears are probably front and center in terms of display today. That really gets into a second-level type of concern that maybe the taper is a little bit more aggressive than we originally thought or the Fed may have to actually raise rates in 2014.”
The S&P 500 retreated for the seventh time in nine sessions and reached the lowest level since July 11. Cisco Systems tumbled 7.2 percent as the world’s biggest maker of networking equipment issued a fiscal first-quarter sales forecast that was lower than most analysts’ estimates amid weakening demand outside the U.S. Wal-Mart fell 2.6 percent after cutting its full-year earnings-per-share forecast.
Hewlett-Packard Co. slid 4.5 percent as rival Lenovo Group Ltd. reported first-quarter profit that beat analyst estimates after increasing its global market share for tablet computers, smartphones and PCs.
Home Depot Inc., Intel Corp. and Walt Disney Co. also lost more than 2 percent to help lead declines in 28 of 30 stocks in the Dow Jones Industrial Average, sending it down 225 points. JPMorgan Chase & Co. slid 1.6 percent. The bank expects to be fined by authorities in the U.S. and U.K. over last year’s $6.2 billion trading loss, which led to criminal charges against two former employees, said a person familiar with the matter.
Gauges of technology, consumer, health-care and financial stocks dropped more than 1.4 percent as all 10 of the main industry groups in the S&P 500 declined. Trading volumes for the 500 stocks were 8.8 percent higher than the 30-day average.
The U.S. central bank, led by Chairman Ben S. Bernanke, will probably reduce its $85 billion in monthly bond purchases at its meeting on Sept. 17-18, according to 65 percent of economists surveyed by Bloomberg from Aug. 9 to Aug. 13. In a survey last month, half of the economists surveyed predicted a reduction.
“The market is beginning to get a little nervous of the fact that most things are probably lining up towards a taper, which is sending yields higher and sending stocks lower,” Burt White, chief investment officer who helps oversee $390 billion at LPL Financial in Boston, said in a phone interview. “There’s a fair amount of uncertainty as to what the Fed’s going to do, when it’s going to do it and will the economic conditions support it.”
Central-bank stimulus helped propel the S&P 500 up more than 150 percent from its low in 2009. The rally that sent the index up 20 percent in 2013 to a record 1,709.67 on Aug. 2 was the broadest in at least 23 years, with 445 companies higher for the year on that date.
Since peaking, the benchmark gauge for U.S. equities has retreated 2.8 percent, while the Russell 2000 measure of small-cap stocks has dropped 3 percent, the S&P 500 Financials Index has fallen 3.7 percent and the Dow Jones Transportation Average has slid almost 5 percent, data compiled by Bloomberg show.
The number of applications for unemployment insurance payments declined by 15,000 to 320,000 in the week ended Aug. 10, the fewest since October 2007, from a revised 335,000, a Labor Department report showed today in Washington. The median forecast of 44 economists surveyed by Bloomberg called for 335,000.
The cost of living in the U.S. rose in July for a third month, supporting the Fed’s forecast that inflation will move closer to its target. The consumer-price index increased 0.2 percent after a 0.5 percent gain in June, Labor Department figures showed today. The advance matched the median forecast of 82 economists surveyed by Bloomberg. The core measure, which excludes food and fuel, also climbed 0.2 percent from June. Other data showed confidence among U.S. homebuilders rose to the highest level since 2005, while industrial production was unchanged and a Fed report showed manufacturing in the Philadelphia region grew less than forecast.
The Stoxx Europe 600 Index fell 1.1 percent, trimming its 2013 advance to about 9 percent, as all 19 industry groups retreated. Trading was 31 percent below the 100-day average, according to data compiled by Bloomberg. Markets in Italy, Greece, Austria, Cyprus and Luxembourg were closed for the Assumption holiday.
“We’ve seen some very good returns from European stocks, and given the lack of catalysts, people are locking in profits,” Richard Scrope, who helps oversee about $160 million as a fund manager at Oriel Asset Management LLP in London, said by phone. “Volumes are very small in European trading today, as is normal for August.”
Zurich Insurance, the biggest Swiss insurer, declined 3.6 percent after second-quarter profit dropped 27 percent on higher natural-catastrophe losses. Oriflame, a seller of cosmetics at parties hosted in private homes, sank 6.6 percent after reporting earnings before interest, taxes, depreciation and amortization that trailed analyst projections.
Ten-year yields climbed for most European sovereign bonds, with rates on U.K., French, German, Dutch, Swiss and Swedish securities adding more than four basis points.
The pound strengthened against all 16 major peers except the franc, climbing more than 1 percent versus the Brazilian real, Mexican peso and Norwegian krone. U.K. retail sales rose more than economists forecast in July as the heatwave boosted demand for food and alcohol. Sales including fuel increased 1.1 percent from June, the Office for National Statistics said today in London. The median forecast of 21 economists in a Bloomberg News survey was for a 0.7 percent gain. Sales have gained for three consecutive months, the first time that’s happened in 4 1/2 years. From a year earlier, sales climbed 3 percent in July, the most since January 2011.
U.K. borrowing costs jumped and demand was below average at an auction of 20-year bonds as evidence that the economic recovery is gathering pace reduced the appeal of fixed-income assets.
Britain sold 2.25 billion pounds ($3.5 billion) of gilts maturing in September 2034 at an average yield of 3.52 percent, compared with 2.79 percent at the previous sale of 20-year securities due in 2032, which took place on June 13.
The bid-to-cover ratio, which compares the number of bids with the amount on offer, was little changed at 1.48 times from 1.45 times in June, and down from 1.98 when the same September 2034 securities were last sold on Aug. 16, 2012. The average for the previous 10 sales was 1.77.
The MSCI Emerging Markets Index fell for the first time in six days, slipping 0.6 percent. The Shanghai Composite Index retreated 0.9 percent as drugmakers declined after the Xinhua News Agency reported China is starting a campaign to crack down on illegal competition. Russia’s Micex Index slid 2.3 percent. Exchanges in South Korea, India and Poland were closed for holidays.
Egypt’s benchmark government bonds slumped for a second day, sending yields to a five-week high, and the nation’s default risk increased.
The yield on the 5.75 percent notes maturing in April 2020 rose 22 basis points to 9 percent at 5:55 p.m. in Cairo, the highest on a closing basis since July 9 and taking the two-day surge to 68 basis points. Credit default swaps, contracts insuring the nation’s debt, have jumped 45 basis points in two days to 795, according to CMA data. The stock exchange was shut today after the central bank ordered banks to close.
Hundreds of people were killed and more than 3,700 injured after police stormed two camps in the capital yesterday, where supporters of former President Mohamed Mursi had congregated since the military overthrew him July 3.
Centamin Plc, a producer of gold in Egypt, slid 3.4 percent in London trading for the biggest two-day drop since June. Police stormed two camps in Cairo yesterday, where former President Mohamed Mursi’s supporters had congregated.
West Texas Intermediate oil rose as much as 1 percent to $107.87 a barrel, the fifth consecutive advance and the longest rally since April 25, before paring gains and trading up 0.4 percent at $107.33. Brent crude climbed 0.8 percent to $111.11.
“The situation in Egypt deteriorated significantly yesterday,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, wrote in an e-mailed report. “Although oil transport through the Suez Canal and the neighboring Sumed pipeline is not expected to be hampered, given that these are under military protection, the risk premium is nonetheless likely to rise.”
Silver advanced 5.3 percent to $23.03 an ounce, the seventh consecutive gain, the longest stretch since January. Gold added 2.1 percent to an eight-week high of $1,360.90 an ounce as declines in equities boosted demand for precious metals as an alternative investment. Platinum and palladium also surged.