S&P 500 Drops as Bonds Slip on Earnings, Fed SpeculationStephen Kirkland and Lu Wang
The Standard & Poor’s 500 Index fell as investors weighed corporate earnings while Treasuries declined for the first time in three days amid speculation on when the Federal Reserve may scale back its asset purchases.
The S&P 500 fell 0.2 percent at 4 p.m. in New York, after rallying four straight days to a record high. The Stoxx Europe 600 Index slumped 0.3 percent, erasing an earlier advance. The MSCI Emerging Markets Index rose 1.6 percent to a six-week high amid optimism over China’s economy. The yield on 10-year Treasuries increased three basis points to 2.51 percent. Volatility measures in stocks, bonds and currency markets touched the lowest levels in about two months. Corn tumbled to a 33-month low.
Apple Inc. jumped 5.3 percent after the close of regular trading as it joined 35 other companies in the S&P 500 reporting results today. An index of manufacturing in the mid-Atlantic region of the U.S. unexpectedly contracted in July. Chinese Premier Li Keqiang said the slowest economic growth policy makers will tolerate is 7 percent, Beijing News reported today.
“What you’re seeing is revenues are coming in pretty lackluster and profits seem to be doing a little better than gains in sales,” Hank Herrmann, Overland Park, Kansas-based chief executive officer of Waddell & Reed Investment Management Co., said by phone. His firm manages $104 billion. “The market had a period of digesting the confusion over Fed tapering. For the moment, it’s focused on individual company fundamentals.”
Of the 145 companies in the S&P 500 to have already posted earnings for the quarter, 71 percent have beat analysts’ profit estimates, data compiled by Bloomberg show. About 53 percent have surpassed forecasts for revenue.
Netflix Inc. slid 4.5 percent after fewer subscribers signed up for its service than analysts had forecast. Travelers Cos., the second-largest U.S. commercial insurer, tumbled 3.8 percent as book value had the biggest quarterly decline since 2008 as higher interest rates pressured its bond portfolio. Texas Instruments Inc. rose 4 percent after forecasting third-quarter sales and profit that may exceed forecasts.
United Technologies Corp. gained 3 percent, leading the Dow Jones Industrial Average to a record high today, as the company boosted the lower end of its 2013 profit forecast. United Parcel Service Inc. dropped 0.1 percent as second-quarter profit fell 4 percent after the world’s largest package-delivery company lowered its full-year forecast earlier this year.
Apple soared 5.3 percent as of 4:57 p.m. New York time. The maker of the iPhone and iPad reported third-quarter profit and sales that beat analysts’ estimates, spurring optimism that the company is weathering an attack from low-end smartphone competition.
Fed stimulus and corporate earnings have helped fuel a surge in stocks worldwide, with the S&P 500 jumping as much as 151 percent from its March 2009 low. Benchmark indexes have reached record highs after Fed Chairman Ben S. Bernanke said last week the central bank remains flexible about the duration of its asset-purchase program.
Yields on 10-year Treasury notes climbed today amid speculation the Fed is moving closer to winding down its asset-purchase program. The U.S. central bank will begin tapering its $85 billion in monthly bond purchases in September, according to 50 percent of economists surveyed by Bloomberg.
Treasuries remained lower after the U.S. sale of $35 billion in two-year notes was met with weaker-than-average demand. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.08, compared with an average of 3.54 for the past 10 sales. The government will sell $35 billion in five-year debt tomorrow and $29 billion in seven-year securities on July 25.
U.S. equities fell earlier in the day after the Fed bank of Richmond’s factory index slid to minus 11 for July. Readings greater than zero signal expansion in the region that includes the Carolinas, the District of Columbia, Maryland, Virginia and West Virginia. The median projection in a Bloomberg survey of economists called for a reading of 9.
The Chicago Board Options Exchange Volatility Index, or VIX, jumped 3 percent to 12.66, snapping a streak of four straight declines. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80 percent of the time, reached a high for the year on June 20 and tumbled 40 percent through yesterday.
The Stoxx 600 dropped 0.3 percent, reversing an earlier advance of at least 0.5 percent after reaching a seven-week high.
Royal KPN NV soared 2.8 percent, extending yesterday’s 13 percent rally, after saying it will sell its German mobile-phone business to Telefonica SA. Swatch Group AG climbed 1.7 percent as the maker of Swiss watches reported first-half profit that exceeded analyst predictions. Sulzer AG sank 14 percent, the most since October 2008, as the Swiss pump maker cut its forecasts.
The VStoxx Index, which gauges the price of options on the Euro Stoxx 50 Index, fell 0.8 percent to 17.34 after touching the lowest level since May 22 earlier in the trading day.
Emerging-market stocks rose as benchmark gauges in South Korea, Taiwan, the Philippines, Thailand and Indonesia climbed at least 1.2 percent. The Beijing News reported Chinese premier Li Keqiang said 7 percent growth is the minimum policy makers will tolerate, signaling the nation will act to support the economy if needed.
The Hang Seng China Enterprises Index of mainland shares listed in Hong Kong jumped 3.9 percent, the most in more than six months, and the Shanghai Composite Index gained 2 percent.
The Bloomberg Dollar Index slipped 0.2 percent, dropping for a third straight day. The U.S. currency declined 0.3 percent against the euro.
The rupiah lost 1.3 percent as Bank Indonesia allowed a more rapid slide toward levels quoted in the offshore market. Hungary’s forint fell versus 15 of 16 major counterparts after the central bank cut its main interest rate for a 12th consecutive month and President Gyorgy Matolcsy said he expects to extend monetary easing.
JPMorgan Chase & Co.’s Global FX Volatility Index dropped for a ninth straight day to 9.15 percent, the lowest level since May 13. It touched a one-year high of 11.96 percent on June 24.
Germany’s 10-year bund yield climbed four basis points to 1.55 percent. Volatility in Treasuries as measured by the Merrill Lynch Option Volatility Estimate Move Index fell to 72.62 yesterday, the lowest level since May 24. The figure is down from 117.89 on July 5, which was the most since December 2010. The one-year average is 64.71.
Corn futures tumbled 2.5 percent after reaching the lowest level since October 2010. Forecasts for cool, wet weather improved prospects for a crop expected to be a record in the U.S., the world’s biggest grower. Wheat fell 0.9 percent.
Oil gained 0.3 percent to $107.23 a barrel, after dropping as much as 1.4 percent earlier in the session. Natural gas futures increased for the first time in three days, jumping 1.8 percent, on speculation that a heat wave last week reduced U.S. stockpile gains.
Gold fell 0.2 percent from a one-month high as India, the world’s largest buyer, added to restrictions on imports. The Reserve Bank of India said yesterday it would be mandatory for gold buyers to set aside 20 percent for re-exports as jewelry in a bid to cut a record current-account deficit.