U.S. Stocks Drop on Obama Remarks as Treasuries, Oil Gain
U.S. stocks fell, erasing early gains, as President Barack Obama said international order is being tested by Russia’s annexation of Ukrainian territory. Treasuries rose following stronger-than-forecast demand at an auction. Oil and the yen rallied.
The Standard & Poor’s 500 lost 0.7 percent to 1,852.56 at 4 p.m. in New York, with losses accelerating in the final hour of trading after the gauge climbed during the morning to within three points of its last record close on March 7. The Russell 2000 Index of smaller companies lost 1.9 percent, the most since Feb. 3. The yield on 10-year Treasuries fell six basis points to 2.69 percent. The yen strengthened 0.3 percent versus the dollar, reversing an earlier drop. Oil rose 1.1 percent after U.S. inventories decreased.
Stocks turned lower as Obama warned that there were consequences for being complacent on the situation in Ukraine. Speaking in Brussels, Obama said Russia can’t run “roughshod” over its neighbors and its incursion into Crimea must be met with condemnation. Stocks climbed earlier as Commerce Department figures showed demand for durable goods in the U.S. increased more than economists estimated in February.
“Investors around the world have been waiting to see what kind of reaction the United States and the EU would really take regarding Russia’s annexation of Crimea beyond sanctions,” Frederic Dickson, chief investment strategist who helps oversee $44.5 billion at D.A. Davidson & Co. in Lake Oswego, Oregon, said in a telephone interview. “Any hints of escalation in terms of rhetoric or action would probably trigger investors to stand back and take recent profits.”
Among stocks moving today in the U.S., Facebook Inc. lost 6.9 percent after buying virtual-reality headset maker Oculus VR Inc. King Digital Entertainment Plc, the maker of the “Candy Crush” smartphone game, slumped 16 percent on the first day of trading. Quest Diagnostics Inc. and Laboratory Corporation of America Holdings jumped more than 4 percent to send health-care stocks to the only gain among 10 industries. DirecTV gained 5.7 percent as Dish Network Corp. was said to have contacted the company about a merger.
The S&P 500 is down 0.3 percent this month and up about 0.3 percent since December, putting it on course for a fifth consecutive quarterly gain. The index has accomplished that feat just seven times since its creation in 1957.
The gauge rose 0.4 percent yesterday after data showed confidence among American consumers at a six-year high, adding to reports indicating the economy is pulling out of a slowdown linked to unusually harsh winter weather. The benchmark gauge of U.S. stocks is trading for about 17.2 times its companies’ reported earnings, near the highest valuation since 2010.
‘Tug of War’
“There is a lot of tug of war, a lot of tensions back and forth,” Ed Crotty, chief investment officer who oversees $1.2 billion at Davidson Investment Advisors in Seattle, said in a phone interview. “Valuation have kind of moved from what was severely depressed valuations to more or less normal valuations. Now it’s going to be about fundamentals.”
Demand for durable goods -- items meant to last at least three years -- climbed a more-than-forecast 2.2 percent, reflecting the biggest gain in automobile demand in a year, the Commerce Department reported today. Orders for U.S. business equipment fell in February for the second time in three months, signaling corporate investment will be slow to gain momentum after severe winter put a damper on demand.
“This data is consistent with a data flow which shows a grinding measurably positive U.S. economic recovery,” Stephen Wood, the New York-based chief market strategist at Russell Investments, which oversees about $257 billion, said by phone. “Most relevantly, the data tends to support the Fed’s taper policy and there doesn’t seem to be anything that’s going to provide a material shock to that policy.”
The Russell 2000, a gauge of U.S. stocks with a median market value of about $1 billion, has tumbled 4.1 percent since Fed Chair Janet Yellen said on March 19 that the central bank’s stimulus program could end this fall and benchmark interest rates may rise about six months later. The S&P 500 has slipped 1.1 percent in the same period and the Nasdaq Composite Index is down 3.7 percent.
Three rounds of bond purchases from the Fed have helped fuel economic growth, sending the S&P 500 surging as much as 178 percent from its 2009 low.
Fed Bank of St. Louis President James Bullard said today policy makers haven’t committed to a specific month to end the bond purchases even as it would take a significant shift in the outlook to alter the path of tapering.
Bullard, who doesn’t vote this year on the Federal Open Market Committee, said in an interview on Bloomberg Television that he doesn’t think “policy has really changed” and that Yellen’s six-month comment wasn’t that different from what financial-market participants were already expecting.
U.S. debt extended gains after an offering of $35 billion in five-year notes drew the highest yield in almost three years, as the securities were at almost the cheapest level in four years relative to two- and 10-year debt. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of debt offered, was 2.99, the highest since September 2012, compared with the 2.6 times average at the past 10 auctions.
The Stoxx Europe 600 Index rose 0.7 percent as all but one of 19 industry groups advanced. The gauge has fallen 2.1 percent this month, heading for its biggest decline since June.
Trading volume was 11 percent greater than the 30-day average today, according to data compiled by Bloomberg.
Turkey’s stock benchmark jumped 4.7 percent as lenders surged after the central bank said it may consider paying interest on a portion of their required reserves. India’s S&P BSE Sensex (SENSEX) rose 0.2 percent, sending the benchmark index to a record after the rupee climbed to an eight-month high.
Russia’s Micex Index (INDEXCF) added 1.9 percent. The gauge has tumbled 6.5 percent this month as President Vladimir Putin took control of Ukraine’s Crimea and incorporated the Black Sea region into its former homeland.
The ruble erased earlier gains versus the dollar, falling 0.2 percent to snap a three-day rally.
After European markets closed, the credit outlooks for Russia’s largest energy companies were cut by S&P amid concern about international sanctions that could cripple the central government.
The outlooks for OAO Gazprom (OGZD), OAO Rosneft (ROSN), OAO Transneft and OAO Lukoil (LKOD) were lowered to negative from stable today, six days after the New York-based credit-rating service downgraded the outlook for the Russian Federation. S&P cited the “very strong links with the sovereign” and said geopolitical developments could hinder the government’s ability to support the companies.
Ukraine will receive an assessment today from the International Monetary Fund on the country’s bailout request. The country is seeking a loan of $15 billion to $20 billion, Finance Minister Oleksandr Shlapak said yesterday.
West Texas Intermediate crude rose 1.1 percent to $100.26 a barrel after reports showed inventories at Cushing, Oklahoma, decreased for an eighth week and automobile demand rose the most in a year. Sugar, hogs and live cattle also climbed at least 1 percent to lead the S&P GSCI Index of commodities up 0.1 percent for a fourth straight gain.
Gold for immediate delivery fell as much as 1 percent to $1,298.68 an ounce, below $1,300 for the first time in five weeks.
Australia’s dollar strengthened against 15 of 16 major peers after central bank Governor Glenn Stevens said the economy may strengthen this year and there were encouraging signs domestic consumption was increasing. In previous comments he has said the Aussie is too strong given economic fundamentals.
To contact the editors responsible for this story: Lynn Thomasson at email@example.com Jeff Sutherland, Michael P. Regan