Stocks Slide on Europe Debt Turmoil as Bonds, Gold Rise
Stocks from U.S. to Europe slid as increasing concern over signs of financial stress in Portugal sent investors seeking safety in Treasuries, the yen and gold.
The Standard & Poor’s 500 Index fell 0.4 percent at 4 p.m. in New York, paring an earlier drop of as much as 1 percent. The Russell 2000 Index of smaller companies declined 1 percent. The Stoxx Europe 600 Index tumbled 1.1 percent to the lowest since May. Portugal’s 10-year bond yield jumped 21 basis points to 3.97 percent. Treasury 10-year rates slid one point to 2.54 percent, the yen advanced against all of its 16 major peers and gold added 1.1 percent. Oil rose for the first time in 10 days.
Bonds of Europe’s most-indebted nations slumped as speculation resurfaced that the euro region remains vulnerable to shocks as it emerges from the sovereign debt crisis. U.S. equities resumed declines after a two-day selloff earlier this week led by Internet and small-cap stocks. The value of global equities climbed to a record $66 trillion last week, data compiled by Bloomberg show.
“People will shoot first and ask questions later when news like this hits,” said Lawrence Creatura, a fund manager at Federated Investors Inc. in Rochester, New York. His firm manages about $363.8 billion. “The concern of an event like this is always determining whether it’s occurring in isolation or whether it’s the first domino. It’s a classic flight to safety across the equity, commodities and bond markets.”
Speculation that U.S. stocks have risen too far, too fast fueled losses earlier in the week as Raymond James & Associates Inc. said equities are vulnerable and Citigroup Inc.’s chief U.S. equity strategist cited concerns for a “severe” pullback. The Russell 2000 is down 3.8 percent for the week, poised for its worst weekly decline in two years, while the S&P 500 has retreated 1.1 percent, the most since April.
U.S. benchmark indexes ended last week at all-time highs, with the Dow (INDU) topping 17,000 for the first time, as the latest government payrolls report showed job growth blew past expectations last month and the unemployment rate fell to the lowest level since before the financial crisis peaked six years ago.
The S&P 500 has not had a drop of 10 percent in more than two years. The gauge trades at a valuation of 18 times reported earnings, the highest since 2011 when it was in the middle of a 19 percent slide, its biggest during the current five-year bull market.
The Chicago Board Options Exchange Volatility Index finished last week at a seven-year low before rallying 16 percent during the first two days of the week, the biggest surge since April. The gauge known as the VIX (VIX) rose 8 percent to 12.58 today.
U.S. equities trimmed steeper losses amid speculation the day’s initial selloff was overdone.
“Everyone expected the worst, and the contagion fears were brought back to fruition, but as the day has gone on those fears have abated a bit,” Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, said in a phone interview. “Right now the market is saying that their concerns are not going to be as widespread as they were when they walked in this morning.”
Home Depot Inc. and Lowe’s Cos. fell at least 1.4 percent after a Deutsche Bank AG analyst lowered his estimates for their profits based on weak results at rivals. Shares in high-dividend yielding companies such as Verizon Communications Inc. advanced.
The S&P 500 rebounded 0.5 percent from a two-day selloff yesterday as optimism over corporate earnings and jobs growth outweighed Federal Reserve concern that investors may be growing complacent about risk.
Minutes of the Fed’s June meeting, released yesterday, showed officials have agreed they’ll end their asset-purchase program in October if the economy holds up. At the same time, the policy makers said the central bank should continue to support favorable financial conditions needed to sustain growth, according to the minutes.
A report today showed fewer Americans than forecast filed applications for unemployment benefits last week, a sign the job market continues to strengthen.
More than 140 companies in the S&P 500, (SPX) including Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs Group Inc. and Johnson & Johnson, will report quarterly results between now and July 23, according to data compiled by Bloomberg.
Profit at S&P 500 companies probably rose 5 percent in the three months through June, while sales gained 3 percent, estimates show. The forecasts have decreased from the start of April, when analysts predicted a 7.3 percent jump in earnings and 3.7 percent sales increase.
U.S. debt pared gains as the Treasury sold $13 billion of 30-year bonds at a yield of 3.369 percent, the lowest auction yield since June 2013, and compared with a forecast of 3.372 percent in a Bloomberg News survey of seven of the Fed’s 22 primary dealers. The yield on the current 30-year bond fell less than one basis point to 3.37 percent. The rate on the 10-year note touched a one-month low earlier in the day.
Portuguese bonds retreated for a fourth day. The yield on 10-year Italian notes rose six basis points to 2.94 percent and Spain’s rate jumped seven basis points to 2.82 percent.
While Portugal’s central bank said Banco Espirito Santo SA, the nation’s second-largest lender, is protected after its parent missed debt payments, Moody’s Investors Service downgraded a company in the group citing a lack of transparency and links to other companies.
Banco Espirito Santo tumbled 17 percent before the Portuguese securities regulator said it stopped trading in the shares pending an announcement. Espirito Santo Financial Group SA, which owns 25 percent of the lender, fell 8.9 percent before the company suspended trading earlier in stocks and bonds, saying it’s “currently assessing the financial impact of its exposure” to Espirito Santo International, which has missed payments on short-term paper.
Greece’s five-year note yield increased 12 basis points 4.33 percent. The government sold 1.5 billion euros of three-year notes via banks, priced to yield 3.5 percent. That’s higher than forecasts earlier this week for a rate of about 3 percent from HSBC Holdings Plc and Royal Bank of Scotland Group Plc.
The Stoxx 600 fell 1.1 percent, extending its loss for the week to 3.3 percent, which would be the largest weekly decline in more than a year. About seven shares declined for every one that advanced in the Stoxx 600, with trading volumes 52 percent higher than the 30-day average, according to data compiled by Bloomberg. A gauge of banks tumbled 1.7 percent to the lowest since Dec. 18.
Banco Popular Espanol SA (POP) dropped 2 percent. The Spanish lender said it postponed a planned issue of the riskiest bank debt because of “heightened volatility” in credit markets.
The yen strengthened 0.3 percent to 101.33 per dollar and gained 0.6 percent to 137.85 per euro. The euro snapped a three-day climb versus the dollar, falling 0.3 percent to $1.3605.
Gold futures jumped 1.1 percent to $1,339.20 an ounce, the highest since March 21. The metal has climbed 11 percent this year, outpacing gains for indexes of commodities, equities and Treasuries. After shunning the metal in 2013, investors are once again adding to holdings through exchange-traded products and seeking safety as turmoil spreads in the Middle East and Eastern Europe.
Oil snapped a nine-day decline, the longest losing streak since 2009. WTI gained 0.6 percent to $102.93 a barrel. Oil demand rose to a one-month high in the four weeks ended July 4, government data showed yesterday.
Indonesian stocks climbed to a one-year high as polls showed Jakarta’s Governor Joko Widodo won the presidency. The Jakarta Composite Index added 1.4 percent to 5,095.20, heading for its highest close since May 2013.
The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong advanced 0.3 percent, after losing 1.6 percent yesterday, its biggest decline in two weeks. The Shanghai Composite Index slipped less than 0.1 percent, extending yesterday’s 1.2 percent retreat.
To contact the editors responsible for this story: Lynn Thomasson at email@example.com Jeff Sutherland