- Shares trim best month since 2011 as December hike odds rise
- Wednesday's surge ``was a little bit overdone'' - Wedbush
Mounting speculation U.S. interest rates will be raised this year rippled across financial markets Thursday, stymieing the biggest monthly equity rally since 2011 as the strongest dollar in two months dented commodities and took down developing-nation assets.
The Standard & Poor’s 500 Index retreated from a two-month high, paring an October advance that’s added more than $1.5 trillion to U.S. equity values. Emerging-market stocks capped their steepest drop of the month, while raw materials from copper to gold sank. Treasuries resumed losses, sending yields on 10-year notes to 2.17 percent. The dollar traded near its strongest level since August as commodity-linked currencies fell.
“Hot money that flowed in, as some investors tried to trade the Fed, is now flowing out quickly,” said Nathan Griffiths, who manages about $800 million in emerging-market stocks at NN Investment Partners in The Hague. “There is a very minute focus on when the Fed raises its reference rate precisely because growth fundamentals are so weak, particularly in emerging markets.”
Odds the Fed will move on rates at their next meeting jumped to 50 percent from around 32 percent a week ago, based on futures prices, after officials signaled they’re prepared to tighten policy amid the waning impact of global market turbulence. While risks to the recovery remain, with data showing a slowdown in American growth last quarter, central banks from Europe to Asia have indicated they are ready to maintain or boost stimulus.
The S&P 500 ended Thursday little changed at 2,089.41 by 4 p.m. in New York, near the highest level since Aug. 19. The gauge surged 1.2 percent Wednesday and has rallied 8.8 percent this month.
The advance bucks conventional wisdom that October is a poor month for U.S. stocks, a perception that is fueled by the month’s link to infamous one-day swoons, including the market crashes of 1929 and 1987. In data going back to 1927, the S&P 500 has delivered a 0.5 percent gain on average in October. Three months -- September, May and February -- have negative returns.
The Nasdaq 100 Index fell 0.2 percent after closing last session within a point of its 15-year high set in July. The Russell 2000 index of small cap stocks weakened 1.1 percent following its best one-day gain this year.
“The rally off of the lows yesterday was a little bit overdone,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “The door was left open for a rate hike in December, which is likely to lead to a much higher dollar. That won’t be a good read for anyone doing business internationally.”
Data Thursday showed pending sales of previously owned homes in the U.S. unexpectedly declined, indicating a cooling of the residential market. Earlier, a report indicated the economy expanded at a slower pace in the third quarter as companies took advantage of gains in consumer and business spending to reduce bloated stockpiles.
Valeant Pharmaceuticals International Inc., the drugmaker whose sales processes were questioned by a short seller last week, slipped 4.7 percent. The two largest pharmacy benefit managers in the U.S. said that they were moving to terminate Philidor RX Services, a mail-order chemist that’s a partner of Valeant, from their networks. Express Scripts Holding Co. said it’s also evaluating four other pharmacies that Valeant has a similar relationship with. Valeant stock has slumped 38 percent this month.
The Stoxx Europe 600 Index ended Thursday little changed, with its October gain intact at 8 percent, the best month since 2009. Deutsche Bank AG and Barclays Plc fell more than 6 percent after their earnings disappointed. Danone, one of the world’s biggest producers of baby formula, climbed 1.5 percent after China said it would abandon its one-child policy.
The MSCI Asia Pacific Index lost 1.1 percent as shares from Japan to Hong Kong dropped.
The Fed’s post-meeting statement released Wednesday prompted the biggest jump in two-year Treasury yields since March. Rates climbed by another two basis points, or 0.02 percentage point, to 0.73 percent Thursday, the highest level in more than a month.
Ten-year Treasury yields rose by seven basis points to 2.17 percent in a second day of gains.
The extra yield investors demand to hold 30-year Treasuries instead of 5-year notes fell to about 140 basis points, the least in nearly two months, as the market adjusted expectations on interest rates.
The MSCI Emerging Markets Index fell 1.7 percent, paring its October gain to 6.8 percent. The index rallied earlier in the month following the Fed’s decision to hold interest rates in September.
The Hang Seng China Enterprises Index, which tracks mainland Chinese stocks listed in Hong Kong, dropped 1.1 percent, while the Shanghai Composite Index closed up 0.4 percent. Both measures are headed for monthly increases in excess of 10 percent.
A gauge of 20 emerging-market currencies fell a fifth day, its longest slump since Sept. 7. Indonesia’s rupiah and the South Korean won weakened about 1 percent against the dollar.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, slid 0.3 percent. It jumped as much as 0.8 percent on Wednesday to its highest level since Aug. 7. The euro added 0.5 percent to $1.0977.
The yen was little changed at 121.13 per dollar, after falling 0.5 percent on Wednesday. Economists remain split on whether the Bank of Japan will boost monetary stimulus at a meeting Friday.
The Bloomberg Commodity Index dropped 0.9 percent, putting it on course for a fourth consecutive monthly decline, the longest run of losses since January.
West Texas Intermediate crude extended gains after its biggest rally in eight weeks, as the focus shifted from rising U.S. refinery demand to the prospects for a rate hike this year. Crude futures gained 0.3 percent to settle at $46.06 a barrel in New York, while Brent slipped 0.5 percent to $48.80.
Gold futures sank 2.4 percent to $settle at 1,147.30 an ounce, touching their lowest level in more than two weeks. Bullion had climbed in two of the previous three weeks on speculation that a weakening global expansion would spur the Fed to hold off on tightening monetary policy. Silver futures for December delivery fell 4.6 percent to $15.55 an ounce.
Copper for delivery in three months declined 1.4 percent to settle at $5,130 a metric ton ($2.33 a pound) in London. Aluminum, zinc, nickel, lead and tin also dropped.