U.S. Stocks Fall Amid Retailer Slump as Oil Climbs; Dollar Falls

Market Volume Muted by Paralyzing Power of Volatility
  • Industrial metals rally from one-month low, led by zinc
  • Japan stock futures signal declines following yen rebound

U.S. stocks tumbled following their biggest gain in two months, as disappointing results from Walt Disney Co. to Macy’s Inc. raised doubts about the strength of the American consumer. Oil rose after an unexpected drop in inventories, while the dollar fell.

The S&P 500 Index retreated for the first time in four days, while the Dow Jones Industrial Average erased all but five points of its Tuesday advance. Retailers led declines as Disney sank the most since January and Macy’s led a selloff in apparel shares. Energy producers rallied as U.S. oil surged past $46 a barrel. Industrial metals also climbed as Glencore Plc forecast demand will exceed supply. Brazilian shares fell, while the real climbed as the Senate geared up for a vote that could oust the president.

As the mixed earnings season draws to a close, the dimmer sales outlook from Macy’s, the largest American department-store company, raised the specter that U.S. consumption appetites are weakening, while ABN Amro Group NV’s 13 percent profit slump reignited concern over the health of the European banking sector. Pessimism over the global economy and central banks’ ability to improve conditions is keeping a cloud over stocks worldwide, after a selloff last week erased some $1.3 trillion of market value.

“Given that equities are about 3 percent away from all-time highs in absence of earnings growth, equities are priced to perfection within a thin margin of error,” Terry Sandven, who helps oversee $126 billion as chief equity strategist at U.S. Bank Wealth Management in Minneapolis, said by phone. “We still need to see earnings accelerate in the second half of this year to propel stocks higher. Upcoming catalysts suggest a cautious bias with an unclear Fed and Brexit meeting.”

Stocks

The S&P 500 fell 1 percent to 2,064.46 as of 4 p.m. in New York, halting a three-day rally that drove it up 1.7 percent. The index extended losses in afternoon trading as the slump in consumer shares took the group to its biggest drop in three months.

Staples Inc. and Office Depot Inc. both plunged the most on record as their merger was abandoned. Disney fell 4 percent after posting profit that trailed analysts’ estimates and saying it will shut down the Infinity video-game division. Macy’s slid to its lowest level since 2011 as the company cut its profit forecast for this year and posted first-quarter revenue that missed estimates.

Analysts have moderated their predictions for a decline in first-quarter profits on the S&P 500 to 7.4 percent, from 9.5 percent at the start of April, according to data compiled by Bloomberg. So far, about 75 percent of the firms that have reported beat profit estimates, while 54 percent exceeded sales projections.

The Stoxx Europe 600 Index lost 0.5 percent, snapping a two-day gain. A gauge of lenders fell the most on the index, with Raiffeisen Bank International AG tumbling after saying it’s considering merging with its parent company to ease the pressure of regulatory requirements. EON SE led utility stocks lower on concerns over how much new capital Germany’s largest utility will need to fund the nation’s exit from nuclear power. 

The MSCI Emerging Market Index rose 0.1 percent as investors assessed prospects for global growth, weighing the outlook with various political risks. Brazil’s Ibovespa slipped 0.6 percent amid uncertainty ahead of the impeachment vote, due late on Wednesday or early Thursday local time.

Futures on Asian stock index were mixed, with some contracts settling before U.S. stock losses gathered pace in the New York afternoon. Contracts on Japan’s Nikkei 225 Stock Average were down 0.8 percent in Osaka, while futures on Hong Kong’s Hang Seng and Hang Seng China Enterprises gauges foreshadowed rebounds of at least 0.3 percent.

Bonds

U.S. Treasuries due in a decade rose, sending yields down by three basis points, or 0.03 percentage point, to 1.74 percent, the lowest closing level in a month. Odds on the Fed raising key rates at its next meeting in June have fallen to 4 percent, from 10 percent a week ago, before weaker-than-projected U.S. payrolls data undermined perceptions of the economy’s strength. 

A report on U.S. retail sales is due Friday, along with an update on producer prices. The U.S. auctioned $23 billion of 10-year notes on Wednesday.

Pacific Investment Management Co.’s Total Return Fund is reducing its holdings of developing-nation debt on speculation the Fed is still on course to raise interest rates. The fund cut its holdings of emerging-market debt to the lowest level in almost two years in April, based on data from the Pimco website.

Spain is the latest euro-region sovereign to sell 50-year bonds, with an issue via banks that priced Wednesday. It follows half-century deals last month from France and Belgium as countries take advantage of historically low interest rates to issue ultra-long debt.

Currencies

The yen climbed 0.8 percent to 108.41 per dollar, after sliding more than 2 percent over the previous two days. The currency has gained more than 10 percent this year, making it harder for the Bank of Japan to achieve its inflation goal.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, fell for a second day, losing 0.4 percent. The gauge had its strongest rally in almost a year in the five days through Monday.

Brazil’s real strengthened 0.7 percent to 3.4518 per dollar as the Senate gears up for the vote that would force Rousseff out of office.

Commodities

West Texas Intermediate crude rallied 3.5 percent to settle at $46.23 a barrel after the U.S. Energy Information Administration said oil stockpiles fell 3.41 million barrels last week. Analysts surveyed by Bloomberg had projected a 750,000-barrel increase.

Gold advanced 0.9 percent to end at $1,275.50 an ounce in New York, buoyed by the dollar’s retreat. Goldman Sachs Group Inc. this week raised its forecasts for bullion prices as it scaled back expectations for Federal Reserve rate hikes over the next year.

Zinc and lead rose by more than 2 percent in London, while copper gained 1.1 percent. Commodities are “now close to pre-supercycle levels,” when growth in Asia fueled a surge in prices, Glencore said Tuesday. The London Metal Exchange’s LMEX Index of six industrial metals closed at a one-month low on Tuesday.

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