S&P 500 Extends Worst Month Since May 2012Will Hadfield and Nick Taborek
U.S. stocks extended the worst monthly drop since May 2012 as investors weighed prospects for an American military response to a chemical weapons attack in Syria. Oil and European shares fell while Portugal’s bond yields surged amid concern the nation won’t meet its deficit target.
The Standard & Poor’s 500 Index lost 0.3 percent to 1,632.97 at 4 p.m. in New York to extend its loss for August to more than 3 percent. The Stoxx Europe 600 Index retreated 0.9 percent today while the MSCI Emerging Markets Index gained 0.8 percent. Portuguese yields jumped to the highest level in more than a month. Ten-year Treasury yields increased 1.5 basis points to 2.78 percent, with the benchmark note posting a fourth month of losses. West Texas Intermediate oil slipped 1.1 percent to $107.65 a barrel and silver and gold retreated.
President Barack Obama will decide on America’s response on the U.S.’s own timeline, Secretary of State John Kerry said as the White House released an assessment saying intelligence agencies have “high confidence” that Syrian President Bashar al-Assad’s forces used chemical weapons in an Aug. 21 attack. U.K. Prime Minister David Cameron failed to gain parliamentary backing for military action. Trading of S&P 500 stocks was 11 percent below the 30-day average before U.S. financial markets close on Sept. 2 for the Labor Day holiday.
“It’s a Friday before a holiday weekend, people don’t want to go into the weekend hugely exposed up or down, especially with this fear of Syria overhanging the market,” Beth Lilly, a Minneapolis-based money manager with Gabelli Funds, which oversees $40 billion, said in a phone interview. “The market does not like uncertainty, and there’s a lot of uncertainty as it relates to Syria.”
Obama said the Syrian government’s use of chemical weapons is a direct threat to U.S. and global security, and indicated the U.S. was ready to act to hold the Assad regime accountable.
“This kind of attack is a challenge to the world,” Obama said in brief remarks at the White House. He added that he hasn’t made a final decision on his response, and that “in no event” will it involve U.S. troops on the ground in Syria. Any action will be “limited, narrow.”
Commodities outperformed stocks and bonds this month. The S&P GSCI gauge of 24 raw materials rose 2.9 percent in August, while the MSCI All-Country World Index of equities declined about 2.3 percent and the BofA Merrill Lynch Global Broad Market Index of debt fell 0.4 percent.
The S&P GSCI dropped 1 percent today as silver declined 1.7 percent to $23.48 an ounce. Gold retreated 0.9 percent to $1,395.11 an ounce, narrowing this month’s gain to about 5.3 percent.
Among U.S. stocks moving today, Hewlett-Packard Co. dropped 0.8 percent after a report predicted global personal-computer shipments will slide more than previously forecast. Krispy Kreme Doughnuts Inc. tumbled 15 percent after reporting second-quarter earnings that trailed analysts’ estimates as costs increased. Salesforce.com Inc. jumped 13 percent as the provider of customer-management software announced forecasts that beat projections.
The S&P 500 has lost 4.5 percent since its last record on Aug. 2 amid concern the Federal Reserve will reduce its bond purchases and the U.S. may take military action against Syria. Trading in the U.S. averaged about 5.5 billion shares a day in August, the second-slowest month in at least five years.
U.S. consumer spending increased 0.1 percent in July, a Commerce Department report showed, compared with the 0.3 percent median forecast of economists in a survey.
European oil producers helped lead losses in the Stoxx 600 as BP Plc, Royal Dutch Shell Plc and Total SA fell at least 1 percent. Royal KPN NV slid 3.4 percent after America Movil SAB said it may withdraw its bid for the Dutch phone company. Late yesterday, KPN’s foundation said it had exercised an option to buy preferred shares, giving it almost 50 percent of issued and voting stock in the telecommunications operator.
L’Oreal SA advanced more than 3 percent after the world’s largest cosmetics maker left open the option to buy back Nestle SA’s 29 percent stake in the company. L’Oreal Chief Executive Officer Jean-Paul Agon told French newspaper Les Echos that “we have the resources permitting us to envisage all opportunities.”
The European Commission’s index of executive and consumer sentiment in the 17-nation euro area climbed to 95.2 in August, from 92.5 in July. That exceeded the median economist forecast in a Bloomberg survey.
Treasuries capped their longest stretch of monthly declines in more than two years. The yield on the benchmark 10-year note rose 20 basis points since July 31, according to Bloomberg Bond Trader data.
Options traders are betting that the longest-term Treasuries will extend losses, sending the cost of bearish contracts on a security tracking U.S. debt to an almost three-year high.
Puts protecting against a 10 percent drop in the iShares 20+ Year Treasury Bond ETF cost 1.98 points more than calls betting on a 10 percent gain, according to six-month options data compiled by Bloomberg. The price relationship known as skew climbed to 2.32 on Aug. 22, the highest since December 2010.
The fund, tracking U.S. government debt that matures in 20 years or more, slumped to a two-year low last week as the improving economy fuels concern that the Fed will slow the pace of its $85 billion in monthly bond purchases when it meets next month. Gross domestic product expanded at a faster pace than estimated in the second quarter, and fewer Americans filed for jobless benefits, reports showed yesterday.
The yen strengthened 0.2 percent to 98.14 per dollar and 0.4 percent to 129.70 per euro. Norway’s krone slid versus 13 of its 16 major counterparts.
Portuguese bonds declined after a court found that a proposed plan to end labor contracts for some state workers was unconstitutional, raising concern the government will struggle to meet its deficit targets. The yield on 10-year Portuguese securities climbed 16 basis points 6.73 percent, its highest level since July 19.
“If you are a creditor of Portugal, that news doesn’t sound very good,” said Luca Jellinek, head of European rate strategy at Credit Agricole Corporate & Investment Bank in London. “It’s the third time the court turns down budget-saving measures. But I don’t think ultimately it’s going to derail what’s going on in Portugal. It just makes it less efficient and harder to slim down the state.”
European corporate bonds lost 0.2 percent in August, the fourth month of declines in a year that has so far generated the worst return since 2008. Investment-grade debt in euros has returned 0.8 percent this year compared with 9 percent in the same period of 2012, Bank of America Merrill Lynch index data show.
The MSCI Emerging Markets Index extended its two-day gain to about 2 percent, the biggest in more than a month. The gauge has still fallen 2 percent in August. The SET Index in Thailand increased 0.1 percent, paring its retreat this month to 9.1 percent.
The Indian rupee strengthened 1.3 percent to 65.71 per dollar after earlier weakening as much as 1.3 percent. Economic growth probably fell to 4.7 percent in the second quarter from 5.4 percent a year earlier, according to the median estimate of 44 economists in a Bloomberg survey. Indian Prime Minister Manmohan Singh said the government’s push to bolster growth will support the rupee, which plunged to a record low earlier this week.