- Market implied odds of Fed rate increase in 2015 at 56%
- S&P 500 rally stalls near 3-month high; Valeant resumes rout
U.S. equities meandered near a three-month high as Janet Yellen’s hawkish commentary on the American economy set the tone in global financial markets, reinvigorating the specter of a 2015 interest-rate hike to boost the dollar, while sinking bonds.
The Standard & Poor’s 500 Index swung between gains and losses Thursday to eventually close down 0.1 percent, as investors awaited Friday’s payrolls report, which is expected to provide clues as to the Federal Reserve’s next move. Embattled drugmaker Valeant Pharmaceutical International Inc. weighed on health-care shares.
The dollar advanced versus most major peers after the Fed chief signaled that her growing confidence in the economy’s strength made a liftoff in rates in December a possibility. Two-year Treasury yields climbed to their highest level since 2010, while copper slid the most in six weeks.
The autumn rally in U.S. equities has stalled since the S&P 500 climbed within 1 percent of its May record. Valeant’s deepening plight has called into question valuations in the health-care sector, while the prospect of higher interest rates keeps a lid on stock gains. The Bloomberg Dollar Spot Index climbed to its highest level since March as traders boosted the odds of a December rate increase to 56 percent. Payrolls data on Friday will probably show the U.S. added more jobs in October, bolstering the case for tightening.
“The only thing that’s certain today is that there are going to be significant price swings in both directions,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “If the implications from the jobs report tomorrow do imply a December rate hike, it could weigh on the market. The Valeant debacle continues to weigh on health care.”
The S&P 500 fell to 2,099.93 by 4 p.m. in New York, capping a second day of losses as it struggles to extend the rally from its August trough beyond 13 percent. The index is about 1.5 percent below its May record.
Equities turned lower in early trading as the resumed slide in Valeant -- a pharmaceutical company targeted by short sellers over its drug pricing methods -- spooked investors in the health sector. Valeant fell 14 percent as Barry Rosenstein’s Jana Partners said it sold its stake. Health-care shares slipped 0.4 percent as a group, recouping a loss of more than 1 percent. Commodities producers also retreated as the stronger dollar sank prices for resources from oil to base metals.
Mixed earnings results also offered little in the way of catalysts for investors. Facebook Inc. rose 4.6 percent to a record after posting higher-than-expected revenue and profit late Wednesday. Ralph Lauren Corp. surged 15 percent after better-than-estimated earnings. Qualcomm Inc. slid 15 percent after its profit forecasts fell short of some analysts’ estimates. Celgene Corp. lost 5.3 percent as sales missed forecasts.
The Stoxx Europe 600 Index retreated 0.4 percent following three days of gains, as commodity shares declined. Energy companies posted the worst performance among industry groups, with Amec Foster Wheeler Plc slumping 22 percent after saying it will halve dividends amid falling oil prices.
Asian stocks outside Japan also dropped, slipping 0.7 percent as indexes from Australia to South Korea retreated. The Topix index in Tokyo climbed 1 percent amid the yen’s decline.
Bloomberg’s dollar index, a gauge of the greenback against 10 major peers, climbed 0.2 percent Thursday, after jumping 0.7 percent last session, the most since Oct. 22. The U.S. currency grazed a three-month high versus the euro, while the yen fell for a fourth consecutive day, dropping 0.2 percent to 121.75 per dollar.
Reports indicating U.S. economic strength Wednesday “gave the markets more confidence that not only was the Fed looking for a December rate hike but the data would support it as well,” said Eimear Daly, a currency strategist at Standard Chartered Plc in London. “With further reassurance from Yellen and a number of speakers, it is the classic monetary policy divergence theme.”
Data released Thursday showed jobless claims rose to a five-week high last week, while unit labor costs increased in the third quarter and worker productivity unexpectedly grew.
The pound weakened and gilts gained after the Bank of England cut its growth and inflation forecasts, signaling it remains cautious on the outlook for higher interest rates. The prospect of more stimulus also got a boost from European Central Bank President Mario Draghi, who said his asset-purchase program could be increased and other tools may be used to ensure inflation in the euro area returns to its goal.
Two-year U.S. Treasury notes fell for a seventh day, sending yields down to 0.84 percent, their highest level since May 2010. A sale of two-year notes on Wednesday drew the weakest demand for the issue in five years.
The yield on the Bloomberg Global Developed Sovereign Bond Index climbed to the highest level since Sept. 16. Ten-year German bund yields reached a two-week high, even as investors awaited a potential boost to the ECB’s quantitative-easing program next month. Similar-maturity Australian bond yields jumped for a sixth day.
The MSCI Emerging Markets Index slid 0.5 percent as benchmark gauges in India, Indonesia, Turkey and the Philippines dropped at least 0.8 percent. Emerging-market currencies weakened for a second day as Fed officials continued to flag the prospect of higher U.S. rates as soon as next month.
Fed Bank of Atlanta President Dennis Lockhart said continued improvement in the economy will probably necessitate a rate increase “soon.” In a speech in Switzerland, the official also said liftoff remains a “close call,” given the situation with inflation. Yell said Wednesday that a December rate hike was a “live possibility.”
The Shanghai Composite Index jumped 1.8 percent, taking its rebound from this year’s low reached Aug. 26 to more than 20 percent, ignoring the Fed-fueled selloff in other parts of Asia. Hong Kong’s Hang Seng China Enterprises Index gained 0.5 percent.
Copper fell the most since Sept. 22 as investors weighed the prospect of higher U.S. borrowing costs and stockpiles tracked by the London Metal Exchange increased by the most in two months. Prices dropped 1.8 percent to $5,041 a metric ton. Aluminum, lead, nickel and zinc also fell in London trading.
Oil in New York fell 2.4 percent to $45.20 a barrel, after sliding on Wednesday the most in three weeks amid an increase in U.S. stockpiles. Crude has slumped about 40 percent the past year and fluctuated between $40 and $51 the last two months amid speculation a global glut will be prolonged as the Organization of Petroleum Exporting Countries continues to pump above its collective target.