U.S. Stocks Pare Advance as Health-Care, Industrials Trim Gains

David Stockman: Markets Going to Be Mauled by Bear
  • S&P 500 trims drop of 1 percent on Deutsche Bank report
  • American crude slides below $28 a barrel amid price swings

Volatility flared on global financial markets, as U.S. stocks attempted a rebound that prevented global equities from entering a bear market. Crude oil maintained its march lower, while Treasuries held onto gains with gold amid demand for haven assets.

The Standard & Poor’s 500 Index ended Tuesday down 0.1 percent after rallying as much as 0.8 percent in afternoon trading on speculation Deutsche Bank AG is considering buying back several billion euros of debt. The lender’s U.S.-listed shares pared a drop of almost 5 percent after the Financial Times reported on the possible bond repurchase. U.S. oil slipped below $28 a barrel, while 10-year Treasury notes climbed a fourth day after yields on similar maturity Japanese bonds fell below zero. The yen and euro strengthened.

“It’s quite a tussle between the bulls and bears,” said John Carey, a Boston-based fund manager at Pioneer Investment Management Inc., which oversees about $230 billion. “Some people think this is a temporary setback and that the market maybe got a little ahead of itself -- that nothing is really wrong with the economy and this is a good buying opportunity. Others think the market is indicating a slowdown in months ahead.”

The fresh rout in crude and the perceived creditworthiness of European banks fueled uncertainty Tuesday over the strength of the world economy, supporting safe investments around the globe. Energy shares fell in New York as oil slumped, with Brent crude tumbling the most in five months amid surging price volatility. The yen reached its strongest level in more than a year as the dollar tumbled. An MSCI Inc. gauge of global equities has lost more than 19 percent from a record high reached in May.

Markets have been beset by volatile trading in 2016 as the global outlook is clouded by concerns from China’s slowing growth to oil’s slump and lackluster corporate earnings. Credit risk has spiked around the world, while safe-haven U.S. Treasuries are off to their best start to a year since 1988. Deutsche Bank’s unusual reassurance that it has enough money to meet obligations on certain bonds added to anxiety that the energy price rout is weakening company balance sheets. As financial markets lurched, signals that central-bank officials are prepared to add to stimulus if needed did little to calm investor anxiety a day before Federal Reserve Chair Janet Yellen testifies before the Congress.

Stocks

The S&P fell 0.1 percent to 1,852.21 as of 4 p.m. in New York. The index earlier dropped to the lowest level since April 2014.

The Nasdaq Composite Index slipped 0.4 percent to its lowest level since October 2014, with declines this week heaviest in shares with the highest price-earnings ratios and among momentum stocks, causing the engine of the bull market to sputter as it nears its seventh anniversary.

“It’s the momentum people and it’s the passive people getting the last hurrah here. The FANG stocks were outperforming at the end of 2015 and now that they’re down year to date, momentum investors keep trying to bounce them back,” Brian Frank, portfolio manager at Frank Capital Partners LLC, said by phone. “It’s the same story as August with low liquidity, high frequency traders pulling in and out of the market, and momentum investors trying to outguess each other. ”

The Stoxx Europe 600 Index slid 1.6 percent to its lowest level since October 2013.

Greece’s Eurobank Ergasias SA led lenders lower, sliding 12 percent, as the cost of insuring financial debt rose amid concern over whether banks are strong enough to cope with a downturn. Credit Suisse Group AG lost 8.4 percent after the Swiss National Bank said it could reduce its negative deposit rate further.

Shares in Tokyo slumped earlier in the day by the most since August and the yield on 10-year Japanese government bonds fell below zero for the first time after measures of credit risk jumped.

Currencies

The yen strengthened past 115 per dollar for the first time in more than a year as haven assets benefited from concern about the creditworthiness of banks and companies. The Japanese currency advanced 0.7 percent to 115.05 per dollar, after touching 114.21, the strongest level since November 2014. The Swiss franc jumped 1.6 percent and the euro gained 0.9 percent to $1.1295.

The global financial turmoil has halted the greenback’s 1 1/2-year climb as traders unwind bets the Federal Reserve will tighten borrowing costs again this year after increasing rates in December for the first time in almost a decade. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, fell 0.5 percent, declining for a second day.

Bonds

Worldwide gains in sovereign bonds sent Japan’s benchmark 10-year yield below zero for the first time as investors seeking the safest assets gorge on government debt.

Yields on Treasury 10-year notes touched the lowest level in a year while those on short-dated German securities slid to a record. Ten-year American yields ended Tuesday down two basis points, or 0.02 percentage point, to 1.73 percent.

Volatility in U.S. sovereign debt reached the highest since September. Credit-default swaps tied to the Deutsche Bank’s senior debt rose for an eighth day in row, climbing nine basis points to 229 basis points, according to data compiled by Bloomberg.

Commodities

Oil fell a fourth day in New York as price volatility climbed to near the highest levels in seven years and Goldman Sachs warned it will “spike” as prices continue to seek an equilibrium, which could drag crude below $20 a barrel.

West Texas Intermediate oil for March delivery slipped 5.9 percent to $27.94 a barrel on the New York Mercantile Exchange. Prices dropped 3.9 percent to $29.69 on Monday. U.S. crude is down about 20 percent this year.

Copper futures declined as Indonesia recommended Freeport-McMoRan Inc. resume shipments from one of the world’s biggest sources of the metal, boosting available supplies at a time of global surplus.

After a four-day rally that sent gold above $1,200 an ounce for the first time since June, prices steadied at $1,188.47 an ounce in the spot market.

Emerging Markets

The MSCI Emerging Markets Index fell for a second day, retreating 0.6 percent. The measure has lost 8.1 percent this year. Renewed concern that global growth is faltering sent traders into less risky assets before Yellen testifies on the strength of the U.S. economy.

The Micex Index slid to a two-week low in Moscow, as benchmark gauges in Turkey and South Africa each slipped at least 2 percent. A gauge of 20 developing-nation currencies was little changed as declines in the Mexican and Colombian pesos and Russia’s ruble offset gains in the Polish zloty and Czech koruna.

Markets in mainland China, Hong Kong, South Korea, Malaysia, Singapore and Taiwan were closed for the Lunar New Year holidays.