Stocks Retreat With Treasuries, Gold While Dollar Climbs

Stocks slid with Treasuries and gold while the dollar rallied as better-than-forecast data on business activity and consumer confidence fueled speculation the Federal Reserve will scale back its bond purchases. The Standard & Poor’s 500 Index trimmed a seventh straight monthly gain.

The S&P 500 retreated 1.4 percent to 1,630.74, its worst drop in six weeks, and capped its first back-to-back weekly declines of the year. Ten-year Treasury yields increased two basis points to 2.13 percent after surging as much as 10 basis points. The Dollar Index, a gauge of the currency against six major peers, jumped 0.3 percent to 83.27 and surged 1.9 percent in May. The Stoxx Europe 600 Index dropped 0.9 percent. The S&P GSCI gauge of 24 commodities slid for a third day, decreasing 1.1 percent as gold and oil paced losses.

Global government bonds were poised for the worst month since 2004 as investors weighed whether the Fed will taper asset purchases as the economy improves. Business activity in the U.S. rebounded in May, with the MNI Chicago Report’s barometer rising to 58.7 to exceed all forecasts in a Bloomberg survey and reach the highest since March 2012. The Thomson Reuters/University of Michigan final index of sentiment increased to 84.5 in May, the strongest since July 2007.

“This is actually saying the economy is expanding,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. “It puts the Fed in check. They are not sure what to do. Views are all over the place, legitimately.”

Bonds, Stocks

U.S. 30-year rates increased one basis points to 3.28 percent. The dollar strengthened against 14 of 16 major peers, climbing 0.4 percent to $1.2994 per euro.

U.S. government debt notes fell 1.8 percent in May as of yesterday, headed for the steepest monthly loss in three years, according to Bank of America Merrill Lynch. Securities in its Global Broad Market Index fell 1.4 percent through May 30, poised for the steepest loss since April 2004.

In the global corporate bond market, the biggest losses in 18 months belied a greater confidence in credit quality. The extra yield investors demand to hold company debentures from the most creditworthy to the riskiest borrowers has narrowed 4 basis points this month through yesterday to 199 basis points, according to another index. In the U.S., the lowest-rated tier of debt is showing positive returns.

Seven Months

The seven-month rally in the S&P 500 is the longest stretch of gains since 2009. The gauge has retreated about 2.3 percent from a record high on May 21 as investors debate the Fed’s plans.

Another report today showed household purchases, which account for about 70 percent of the economy, dropped 0.2 percent last month, the Commerce Department reported. Gross domestic product grew an annualized 2.4 percent pace in the first quarter, down from a preliminary reading of 2.5 percent, government data released yesterday showed.

Pfizer Inc., Hewlett-Packard Co. and UnitedHealth Group Inc. lost more than 3 percent to lead the Dow Jones Industrial Average down 208.96 points to 15,115.57 today for its worst drop since April 15. Pall Corp. retreated 5.1 percent after lowering its earnings forecast. American International Group Inc. slid 3.8 percent after saying it hasn’t received a deposit in the sale of its plane-leasing unit.

Netflix Inc. rallied 1.6 percent after Nasdaq OMX Group said it will be added to the Nasdaq 100 Stock Index in June. Dell Inc. climbed 0.6 percent as shareholders sued founder Michael Dell, the company’s board and private-equity partners over their bid to take the computer maker private.

The Chicago Board Options Exchange Volatility Index, or VIX, rose 12 percent to 16.30 for the biggest gain since April 17. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, added 21 percent this month for its biggest gain in a year.

Index Rebalancing

Changes by MSCI Inc. to its global and U.S. equity indexes will be implemented at the close of trading today. The process known as rebalancing can lead to swings in affected stocks. The additions and deletions of stocks to gauges such as the MSCI All-Country World Index and the MSCI World Index of developed-market equities were announced on May 15.

While yield-seeking investors drove so-called defensive stocks to among the biggest gains in the S&P 500 in the first quarter, they’ve been lagging other industries since then. Utilities, phone companies and consumer-staple companies are the worst performers among 10 groups this quarter, while financials and consumer discretionary stocks have posted the biggest gains.

Cyclicals Advised

Investors should buy inexpensive cyclical stocks that have improved balance sheets, the ability to raise dividends and earnings stability over high-yielding sectors like utility and telephone stocks that have gotten expensive, Savita Subramanian, Bank of America Corp.’s head of equity strategy, said.

JPMorgan Chase & Co.’s Thomas J. Lee also wrote in a note today that the recent focus on Fed tapering may signal a shift from investors’ favoring “bond-like” equities to companies most tied to economic growth. Credit Suisse Group Inc.’s Andrew Garthwaite said that while cyclical companies have outperformed recently, the rally has further to go as U.S. economic momentum is still gaining strength.

Almost four shares retreated for every one that gained in the Stoxx 600 today, as 18 of 19 industry groups fell. The index has rallied for the past 12 months, the longest winning streak since 1997.

Royal KPN NV, the Dutch phone operator, and Salzgitter AG, Germany’s second-largest steelmaker, dropped more than 4 percent as analysts downgraded the shares. PostNL NV rallied 6.9 percent after the Dutch mail-delivery company raised its profit forecast.

Spain’s bonds fell, pushing the 10-year yield up seven basis points to 4.44 percent and widening the yield gap to the benchmark German securities by nine basis points to 2.93 percentage points.

Emerging Markets

The MSCI Emerging Markets Index fell 0.8 percent today and declined 3 percent in May, the most in a year. India’s Sensex slid 2.3 percent, its biggest daily slump in more than a year, after the economy grew less than 5 percent for a second quarter. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong sank 0.9 percent before a manufacturing report tomorrow. Brazil’s Ibovespa sank 2.4 percent today to cap a 5.4 percent weekly slide and reach the lowest level since April 18.

Yen Gains

The yen gained against 14 of its 16 major peers, advancing 0.4 percent to 130.8 per euro. The yen is still headed for an eighth successive monthly drop against the dollar, the longest run since 1996. The South African rand weakened 0.5 percent to 10.908 per dollar, reaching the lowest since March 2009. It has declined for 16 of the past 17 trading days, depreciating 12 percent this month as the government struggles to resolve labor unrest that led to slower-than-forecast growth in the first quarter.

The S&P GSCI lostn 1.4 percent this month, after tumbling 4.7 percent last month. West Texas Intermediate oil dropped 1.8 percent to a one-month low of $91.97 a barrel, capping a third weekly decline after U.S. stockpiles climbed to the most in more than 80 years. OPEC maintained its production quota at a meeting in Vienna today. Gold for August delivery slid 1.3 percent to $1,393 an ounce and lost 5.4 percent in May for the seventh decline in eight months.

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