Most U.S. Stocks Fall as Goldman Tumbles; Treasuries, Brent Drop
Most U.S. stocks fell as Goldman Sachs Group Inc.’s drop in the last 15 minutes of trading wiped out the Standard & Poor’s 500 Index’s rally. Treasuries fell on speculation the Federal Reserve will announce a plan to stimulate the economy, while Brent crude slid.
About 10 stocks fell for every nine that rose on U.S. exchanges at 4 p.m. in New York. The S&P 500 advanced less than 0.1 percent to 1,123.82, as financial shares lost 1.3 percent. The yield on 10-year Treasury notes climbed four basis points. The yen weakened from almost its postwar record against the dollar. Brent oil slipped 0.3 percent after Libyan rebels swept into Tripoli. Gold topped $1,900 an ounce for the first time.
The four-week rout in equities has wiped out more than $8 trillion in global stock values before central bankers from around the world prepare to meet in Jackson Hole, Wyoming. Record-low yields on U.S. Treasuries show traders expect Federal Reserve Chairman Ben S. Bernanke to signal a third round of asset purchases on Aug. 26. Goldman Sachs fell 4.7 percent after Reuters said Chief Executive Officer Lloyd Blankfein hired a defense attorney.
“The market remains very nervous and I expect a great deal of attention will be paid to Bernanke’s Jackson Hole address and his analysis of economic prospects,” Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $48 billion, wrote in an e-mail. “Valuations are quite reasonable in the stock market, but until investors get a clearer sense of the potential downside risks they will be reluctant to buy.”
The S&P 500 has fallen 18 percent from an almost three-year high on April 29. The decline through Aug. 8 drove the index to a valuation of 12.2 times reported earnings, the lowest level since March 2009. The MSCI World Index of stocks fell last week for a fourth straight week as investors took flight after a deadlock in the U.S. congress brought the government to the brink of default, reports showed the world’s biggest economy is slowing, and concern grew that Europe’s sovereign-debt crisis will spread.
The benchmark index for American equities climbed as much as 2 percent after the market open today, only to erase that gain during morning trading. The slide in the S&P 500 tracked losses in Germany’s DAX Index (DAX), which fell 2.1 percent from the open of U.S. exchanges to close down 0.1 percent, even as the Stoxx Europe 600 Index rallied 0.8 percent, data compiled by Bloomberg show. The S&P 500 rallied again before erasing that advance in the last half hour of trading.
Jackson Hole Meeting
The Stoxx 600 rebounded from a two year-low. The index has plunged 17 percent in the past four weeks. Eni SpA, the Italian oil company that was the biggest foreign producer in Libya, gained 6.3 percent today. Total SA, France’s largest oil company, climbed 2.3 percent.
Equity volatility gauges in the U.S. and Europe decreased amid optimism over a Fed move to stimulate the economy. The VIX index, which measures S&P’s 500 Index options prices, fell 1.4 percent to 42.44. Europe’s VStoxx Index, which measures prices for Euro Stoxx 50 Index contracts, dropped 1.5 percent to close at 46.59 after earlier falling as much as 8 percent.
Central bankers from around the world will meet in Jackson Hole at an annual conference sponsored by the Federal Reserve Bank of Kansas City. That’s the same place where Bernanke triggered financial rallies a year ago when he said the Fed was prepared to “do all that it can” to ensure economic recovery and suggested it would purchase more securities if growth slowed. Bernanke’s appearance a year later comes as U.S. manufacturing weakens, consumer confidence tumbles and the unemployment rate holds above 9 percent.
‘Hurdle Remains Pretty High’
“Eyes are clearly pointing to Bernanke’s speech on Friday,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. “People are of the belief that there’s an increasing likelihood of a new quantitative easing program. We hold no expectation that we’re going to see that. The hurdle remains pretty high. I’m a little concerned that if we get some rally on that expectation and it doesn’t come through that the equity market would be set for a decline.”
At a time when U.S. equities have lost $2.9 trillion in market value, stock analysts are twice as bullish as they’ve been over the past 56 years when compared with economists.
Wall Street firms pushed up estimates for Standard & Poor’s 500 Index earnings for a 10th straight quarter, forecasting a 17 percent gain in 2011, data compiled by Bloomberg show. That’s 9.9 times more than economists say gross domestic product will grow. The average ratio since 1954 is 5.4 times, the data show.
“Everyone’s struggling right now with two questions,” Keith Wirtz, the Cincinnati-based chief investment officer at Fifth Third Asset Management, which oversees $16.7 billion, said in a telephone interview on Aug. 19. “Is there a recession on the horizon, and where will earnings go? There’s a void of information. People are discounting the chances of a recession and what that could mean for earnings.”
The Morgan Stanley Cyclical Index of companies whose earnings are most-dependent on economic growth dropped 0.4 percent today after rallying 2.7 percent earlier. Financial stocks reversed earlier gains, slipping 1.3 percent as a group.
Goldman Sachs dropped 4.7 percent to $106.51, the lowest price since March 2009. Goldman Sachs confirmed the Reuters report after the close of regular trading. Blankfein and other people hired attorneys in relation to a U.S. probe of matters raised by the Senate’s Permanent Subcommittee on Investigations, the company said in an e-mailed statement.
Bank of America
Bank of America Corp. (BAC) tumbled 7.9 percent. China Construction Bank Corp. said the U.S. bank agreed to retain at least half its 10 percent holding in the world’s second-largest lender by market value. Analysts including Charles Peabody of Portales Partners LLC said the firm would sell all its shares.
The euro fell against the majority of its most-traded counterparts, erasing earlier advances as stocks fluctuated, reducing demand for higher-yielding assets. The euro slid 0.3 percent to $1.4360, after gaining as much as 0.3 percent.
The yen declined against 13 of its 16 major counterparts after Finance Minister Yoshihiko Noda said he is ready to take decisive steps after the currency rose to its postwar record last week. The Japanese currency dropped 0.3 percent against the dollar, and less than 0.1 percent versus the euro.
Noda told reporters in Tokyo he’s become “more concerned about the worsening of the yen’s one-sided movements.” The government will take “bold actions if necessary and won’t rule out any possible options,” he said.
Japan last intervened in the currency market, selling yen in an effort to halt its climb, on Aug. 4, driving the currency down as much as 4.1 percent against the dollar. It has since appreciated 2.7 percent.
The Swiss franc depreciated against all of its 16 major peers amid speculation policy makers will intervene to curb the currency’s gains. The Swiss Cabinet expects the SNB to set an exchange-rate target of at least 1.2 francs per euro, SonntagsZeitung reported, without saying where it got the information. The franc declined 0.4 percent against the euro and 0.7 versus the dollar.
Treasuries fell, pushing the 10-year yield up four basis points to 2.11 percent, before the government sells $99 billion of notes this week. The yield declined to a record low of 1.97 percent on Aug. 18. Treasury two-year note yields reached the highest in two weeks amid concern that low yields will erode demand for this week’s debt auction. Treasury rates also show traders expect Bernanke will signal as soon as this week that the central bank will begin a third round of quantitative easing.
Barclays Plc said 10-year yields indicate traders have priced in $500 billion to $600 billion of Treasury purchases by the Fed. Citigroup said current rates can only be justified by more central bank bond buying or assuming the economy will shrink by 2 percent.
The Markit iTraxx SovX Western Europe Index of credit- default swaps linked to 15 governments increased eight basis points to 298, the highest in more than a week. German Chancellor Angela Merkel said euro-area common bonds are “the wrong answer,” fueling speculation that her resistance will prolong the debt crisis in Europe. The yield on Greece’s 10-year bond rose 17 basis points to 16.81 percent and Portugal’s 10- year increased 16 basis points to 10.76 percent.
Brent oil fell in London, narrowing its record premium to the main U.S. crude grade, on speculation Libyan production will recover after rebels entered the capital city of Tripoli. Brent crude fell to $108.30 a barrel. New York oil increased 2.3 percent to $84.12. Brent, more sensitive to global supply disruptions than WTI because it’s a benchmark for half of the world’s oil, advanced 19 percent in the first six months of 2011 after the rebellion against Muammar Qaddafi disrupted supplies. Oil in New York gained 4.4 percent in the first half.
Gold surged 2.6 percent to $1,899.50 an ounce in after- hours electronic trading on the Comex in New York, as mounting concern that the global economy is faltering spurred demand for bullion as a protection of wealth. Earlier, the price touched a record of $1,901.70. Silver climbed for a seventh day, the longest streak since April 22, gaining 2.1 percent to $43.37 an ounce.
Corn futures rose to a 10-week high on speculation that recent rains in the U.S. Midwest weren’t enough to ease dry conditions. Wheat rose to a two-month high on concern yields from the spring crop in the northern U.S. will be less than the government forecast. Corn futures advanced 1.3 percent, wheat climbed 0.6 percent and soybeans jumped 1.2 percent.
The MSCI Emerging Markets Index decreased 0.4 percent. South Korea’s Kospi Index sank 2 percent for the biggest retreat among equity indexes in major developing nations, while China’s Shanghai Composite Index slipped 0.7 percent.
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