U.S. Stocks, Treasuries Rise Amid Speculation Over FedKatie Brennan and Jeff Sutherland
U.S. stocks rose and Treasuries reversed earlier declines amid speculation over when the Federal Reserve may reduce its stimulus measures. The dollar fell while gold advanced.
The Standard & Poor’s 500 Index rose 0.3 percent at 4 p.m. in New York, erasing an earlier drop of as much as 0.4 percent. The yield on 10-year Treasury notes slipped 1 basis point to 2.58 percent. The Stoxx Europe 600 Index slumped 0.5 percent amid disappointing earnings after reaching an almost eight-week high yesterday. The dollar fell, while the yen climbed versus most of its 16 most-traded peers. Gold gained for the first time in three days.
Facebook Inc. posted revenue and profit that beat analysts’ estimates while BASF SE, the world’s biggest chemical maker, reported earnings that missed forecasts. Newmont Mining Corp. and Amazon.com Inc. are among companies reporting earnings today. U.S. durable goods orders increased more than forecast in June, according to Commerce Department data, while jobless claims rose in the latest week.
“It seems like market participants on a day-to-day basis want to trade more on the prospect of what that means for the Fed’s tapering plan,” Jeff Layman, chief investment officer of BKD Wealth Advisors in Springfield, Missouri, said in a phone interview. His firm has $2.3 billion under management. “I’d much rather see the market supported by a positive underlying economic trend and real activity, rather than supported by the hope that the Fed will continue to artificially suppress the rate.”
The S&P 500 declined the most in a month yesterday, after climbing to within 3 points of 1,700 for a third straight day, as housing and manufacturing data fueled speculation the Fed may reduce its asset-buying this year and investors weighed earnings reports. Support from central banks and better-than-estimated earnings have driven the S&P 500 up as much as 151 percent from its March 2009 low to record highs.
Treasuries erased a decline and equities rose after a Wall Street Journal article suggested the Fed will reassure investors that policy makers won’t be quick to raise interest rates at next week’s meeting of The Federal Open Market Committee.
The Fed will start trimming purchases in September, according to a Bloomberg survey of economists. Fed Chairman Ben S. Bernanke said last week it is “way too early to make any judgment” as to whether policy makers will start tapering purchases in September. The central bank has said economic data will determine the timing and pace of any reduction in its $85 billion in monthly bond-buying.
Data today showed bookings for goods meant to last at least three years rose 4.2 percent, three times the median forecast of economists surveyed by Bloomberg. Another report showed claims for jobless benefits rose by 7,000 to 343,000 in the period ended July 20. The retooling at carmakers and school closings typical during this time of year continued to influence the figures last week, a government spokesman said.
Facebook rallied 30 percent after the world’s most popular social-networking service posted second-quarter revenue and profit that beat analysts’ estimates. Visa Inc. advanced 4.2 percent to a record as profit topped forecasts. Homebuilders sank 4.8 percent as a group after PulteGroup Inc. and D.R. Horton Inc. reported lower-than-forecast orders.
Of the 244 companies in the S&P 500 that have posted quarterly results so far, 73 percent have exceeded analysts’ profit estimates and 57 percent have topped sales projections, data compiled by Bloomberg show.
“Valuations have moved faster than the underlying earnings,” Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees about $130 billion, said by telephone. “You’ve had a willingness by investors to take on more risk without compensatory more earnings. In the long run in order to sustain higher prices, you need higher earnings.”
Equity valuations have climbed 16 percent this year, with the S&P 500 trading at 16.3 times reported earnings, close to the highest level since May 2010, data compiled by Bloomberg show.
The Stoxx Europe 600 Index slipped 0.5 percent. The volume of shares changing hands in Stoxx 600 companies was 18 percent less than the 30-day average, according to data compiled by Bloomberg.
BASF lost 4.5 percent as it said meeting its targets looked difficult, while Orange SA, France’s former phone monopoly, dropped 3.2 percent after posting an 8.5 percent drop in earnings. Michelin & Cie., Europe’s largest tiremaker, sank 1.4 percent after reporting a 13 percent decline in first-half profit. Roche Holding AG advanced 0.6 percent as the maker of cancer drugs reported earnings that exceeded estimates.
The yield on 10-year Treasuries fell 1 basis point to 2.58 percent. Yields touched the highest level in more than a week earlier as the data on durable goods bolstered bets the economy is strong enough for the Fed to start trimming bond purchases. A U.S. auction of $29 billion in seven-year notes were sold at a what’s known as a high yield of 2.026 percent, the most since July 2011.
The MSCI Emerging Markets Index fell for a second day, slipping 0.4 percent. The Shanghai Composite Index lost 0.6 percent, Russia’s Micex Index slid 0.5 percent and India’s Sensex declined 1.4 percent. Turkish stocks dropped for a sixth day, the longest losing streak in seven weeks, retreating 0.2 percent.
The dollar fell versus most major counterparts on speculation the Fed will reassure investors on interest rates. The Japanese yen strengthened for the first time in three days against the euro, rising 0.5 percent, and increased 1.1 percent to 99.21 per dollar. The euro advanced 0.6 percent to $1.3279.
New Zealand’s dollar climbed at least 0.8 percent against all 16 of its major counterparts. Reserve Bank Governor Graeme Wheeler said a removal of monetary easing “will likely be needed in the future.” The kiwi gained 1.9 percent to 80.78 U.S. cents.
The pound increased 0.5 percent to $1.5388 as a report showed Britain’s economy grew 0.6 percent in the second quarter, with all main industries showing expansion for the first time in three years.
German bund yields rose three basis points to 1.67 percent. Data showed German business confidence rose for a third month in July. The Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 106.2 from 105.9 in June. Economists predicted an increase to 106.1, according to the median of 45 forecasts in a Bloomberg News survey.
The cost of insuring against losses on corporate bonds rose, with the Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies increasing 3.2 basis points to 103.31 basis points.
The average yield investors demand to hold speculative-grade corporate bonds in euros fell to 4.75 percent yesterday, the lowest since June 4. The rate for investment-grade securities rose 5 basis points to 2.03 percent, the highest since July 5, Bloomberg index data show.
Gold futures for December delivery rose 0.7 percent to settle at $1,329.50 an ounce on the Comex in New York. Oil settled higher after fluctuating during the trading day. Crude futures for September delivery gained 10 cents to $105.49 a barrel, after sliding as much as 1.2 percent earlier.