Global stocks dropped from a five-year high, with shares in Europe halting the longest rally in 40 months, as oil and copper tumbled after China’s money-market rates jumped. The yen and Treasuries rose and the dollar rebounded from an almost two-year low versus the euro.
The MSCI All-Country World Index lost 0.6 percent at 4 p.m. in New York for its biggest drop in two weeks. The Standard & Poor’s 500 Index decreased 0.5 percent after reaching a record yesterday for a fourth straight day. Chinese shares fell for a second day and Japan’s currency advanced against all 16 major peers, rising 2.2 percent versus New Zealand’s dollar. Treasury 10-year yields fell to a three-month low. Oil lost 1.5 percent to $96.86 a barrel following bigger-than-forecast growth in supplies. Copper fell 2.2 percent.
Altera Corp. and Caterpillar Inc. helped lead declines in the S&P 500 following revenue forecasts that disappointed investors. China’s benchmark money-market rate jumped the most since July as the central bank refrained from adding funds to markets. The European Central Bank said it will use stricter rules when stress testing banks’ balance sheets next year than it will to study their assets. More than 30 companies in the S&P 500 are scheduled to report results today.
“The market has run quite a bit,” Edward Painvin, chief investment officer of Chase Investment Counsel Corp., said by phone from Charlottesville, Virginia. His firm oversees $500 million. “Every time we have that kind of move going into earnings season, expectations are high. The market is going to be placing an increasing amount of emphasis in companies delivering expectations and providing some clarity for 2014.”
The S&P 500 snapped a five-day rally after yesterday extending its 2013 advance to 23 percent, on pace to challenge 2009’s 23.45 percent jump for its best yearly advance in a decade. The equity rally has pushed valuations to the highest in almost four years. The S&P 500 started today trading at 15.9 times estimated earnings, the most since December 2009, data compiled by Bloomberg show.
Semiconductor companies in the S&P 500 lost 2.4 percent as a group for the worst loss among 24 industries. Altera sank 13 percent, the biggest drop in six years, to lead the S&P 500 lower after the chipmaker forecasting fourth-quarter sales that trailed estimates. Broadcom Corp. fell 2.9 percent after the company forecast lower fourth-quarter revenue than analysts projected and said it’s cutting as many as 1,150 jobs as demand slows for chips that connect mobile phones to the Internet.
Caterpillar, the world’s largest maker of construction and mining equipment, fell 6.1 percent for its biggest drop in two years after cutting its sales and earnings forecasts following a slump in orders from commodity producers. Cree Inc. plunged 17 percent as the maker of energy-efficient lighting products reported earnings that missed estimates.
Corning Inc., the maker of glass for televisions and mobile devices, jumped 14 percent after approving a $2 billion buyback and agreeing to purchase full ownership of a Samsung Electronics Co. joint venture. Boeing Co. climbed the most since 2011, jumping 5.3 percent to a record $129.02, after boosting its full-year earnings estimate amid an increase in jetliner deliveries.
The U.S. equities rally has been fueled by unprecedented Fed stimulus and better-than-estimated corporate earnings. Analysts raised forecasts for profits in the third quarter, predicting an average increase of 2.5 percent for companies in the S&P 500, estimates compiled by Bloomberg show. That compares with 1.7 percent forecast at the beginning of the month.
Earnings beat analyst estimates at 76 percent of the 162 companies in the S&P 500 that have released their results so far this reporting period, while 54 percent exceeded sales projections, data compiled by Bloomberg show.
Former Federal Reserve Chairman Alan Greenspan said stock market momentum is heading upward.
“In a sense, we are actually at relatively low stock prices,” Greenspan, who guided the central bank for more than 18 years, said in an interview with Sara Eisen on Bloomberg Television today. “Indeed I say that so-called equity premiums are still at a very high level, and that means that the momentum of the market is still ultimately up.”
The Stoxx Europe 600 Index fell 0.6 percent. The gauge had rallied for nine days, the longest winning streak since June 2010, and reached the highest level in five years.
Orange SA slid 5.4 percent as France’s largest telecommunications company reported decreased earnings. STMicroelectronics NV declined 8.9 percent, the most in three months, after Europe’s biggest semiconductor maker reported a net loss. De La Rue Plc plunged 9.7 percent as the world’s largest banknote printer cut its profit forecast.
The MSCI Emerging Markets Index fell for the first time in seven days, losing 1.2 percent. India’s S&P BSE Sensex gauge slipped 0.5 percent, led by Wipro Ltd. as sales growth trailed its peers. Benchmark gauges in Brazil, Russia, Poland and South Korea lost at least 0.7 percent.
The Shanghai Composite Index dropped 1.2 percent and the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 1.8 percent. The seven-day repurchase rate, a gauge of funding availability in the banking system, surged 45 basis points to 4.03 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.
Ten-year Treasury yields fell two basis points to 2.49 percent, the lowest since July 23, Bloomberg Bond Trader data showed. Treasuries rallied the most in a month yesterday after a report delayed because of the U.S. government shutdown showed employers added 148,000 workers in September, below the 180,000 gain projected in a Bloomberg survey of economists.
The cost of insuring against losses on corporate bonds rose from a 3 1/2-year low. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies increased 2.4 basis points to 86.1 basis points.
The S&P GSCI gauge of 24 commodities dropped 1.4 percent as oil slid to the lowest since June. China is the biggest buyer of industrial metals and energy. Crude inventories climbed 5.25 million barrels last week, the Energy Information Administration said. Analysts surveyed by Bloomberg estimated a gain of 3 million. Stockpiles at Cushing, Oklahoma, increased for a second week and domestic production jumped to the most in 24 years.
Gasoline futures slid 2.4 percent to $2.5544 a gallon, the lowest on a closing basis since June 2012. Gasoline pump prices in the U.S. are poised to drop to the lowest since February 2011 by New Year’s Eve as supplies increase more than demand, providing a lift for consumers in an economy struggling to recover from the deepest recession since the 1930s.
Retail prices will probably sink to an average $3.15 a gallon by Dec. 31 from $3.339, Michael Green, a spokesman in Washington for AAA, the nation’s largest motoring organization, said yesterday. The highest seasonal inventories in three years are set to rise as plants return from scheduled maintenance. Refining capacity in the fourth quarter will be 410,000 barrels a day higher than last year while demand climbs 10,000 barrels, the Energy Information Administration estimated Oct. 8.
The yen climbed to the strongest level in two weeks against the dollar and rebounded from a four-year low versus the euro. Japan’s currency strengthened 0.8 percent to 97.36 per dollar after reaching 97.16, the strongest level since Oct. 9. It advanced 0.8 percent to 134.13 per euro from yesterday, when it touched 135.51, the weakest since November 2009.