Stocks, Treasuries Drop; Natural Gas Leads Commodity LossNick Taborek and Michael P. Regan
Stocks fell, with Europe’s benchmark index slipping from a five-year high and the Standard & Poor’s 500 Index dropping a second day, as investors weighed rising valuations and disappointing earnings forecasts. Treasuries retreated while natural gas led commodity losses.
The S&P 500 lost 0.2 percent to 1,787.87 by 4:40 p.m. in New York, and the Stoxx Europe 600 Index fell 0.7 percent. Ten-year U.S. Treasury yields rose from a one-week low, climbing four basis points to 2.71 percent as German bunds dropped. Natural gas sank 1.7 percent on forecasts for moderating U.S. weather after a cold snap. The Australian dollar and yuan forwards gained as China’s central bank said it will “basically” exit from normal intervention in the market.
Best Buy Co., the world’s biggest consumer-electronics retailer, slid 11 percent to lead losses in the S&P 500 after saying it will work to keep pace with competitors’ holiday discounts, while Campbell Soup Co. dropped more than 6 percent after trimming its profit forecasts. The Organization for Economic Cooperation and Development cut its global growth forecasts for this year and next, while a report showed German investor sentiment rose for a fourth month.
“We’ve had a big run, the market’s a little overbought,” Bruce Bittles, chief investment strategist at RW Baird & Co., said by phone from Sarasota, Florida. His firm oversees $100 billion. “My suspicion is that the market might go sideways now for a little while before we encounter a year-end rally in December.”
The S&P 500 closed 0.4 percent lower yesterday at 1,791.53 after earlier climbing above 1,800 for the first time ever. The benchmark gauge has gained 25 percent in 2013, poised for its strongest yearly rally in a decade, and is trading near its highest price-to-earnings valuation in more than three years.
Home Depot Inc., the largest U.S. home-improvement retailer, rose 0.9 percent for the second-biggest gain in the Dow Jones Industrial Average after reporting third-quarter profit that topped analysts’ estimates and raising its earnings forecast. The Dow lost 0.1 percent after four days of gains.
JPMorgan Chase & Co. climbed 0.7 percent after reaching a $13 billion deal with the U.S. Justice Department that ends probes into the bank’s sale of mortgage bonds, the largest amount paid by a financial firm in a settlement with the government.
Tesla Motors Inc., an electric-car maker, rebounded 3.7 percent today after plunging 10 percent yesterday as safety officials in California investigate an industrial accident at the company’s sole Model S plant that injured three workers.
The MSCI All-Country World Index halted a four-day advance, declining 0.3 percent from the highest level since January 2008.
Asian index futures were mixed, with contracts on gauges in Australia and South Korea falling while futures on Hong Kong’s Hang Seng and Hang Seng China Enterprises indexes added at least 0.2 percent. Nikkei 225 Stock Average futures gained 0.5 percent to 15,220 by 3 a.m. in Tokyo, and traded at 15,200 in Chicago from 15,150 in Japan yesterday.
Federal Reserve Chairman Ben S. Bernanke is scheduled to speak in Washington today after Fed Bank of New York President William Dudley said yesterday that while he’s “more hopeful” the U.S. economy is strengthening, it’s not enough to warrant stimulus cuts yet.
Chicago Fed President Charles Evans said today the central bank would “like to get to the determination that the labor market has improved substantially” so tapering of quantitative easing can begin. One of Janet Yellen’s first challenges as the new Fed chairman will be figuring out how to cushion against a lurch in interest rates when she pares the pace of bond buying.
After sending 10-year Treasury yields more than a percentage point higher by fueling taper expectations in May and June, U.S. policy makers are now grappling with their options on reducing debt purchases that have swelled their balance sheet to a record $3.91 trillion. The Fed’s failure so far to convince investors that tapering on its own doesn’t constitute a tightening of policy creates the risk of more market volatility as the central bank communicates about tools it’s never used.
Yellen defended bond purchases by the Fed in a letter to a U.S. senator, saying the easing boosted economic growth and provides benefits that exceed its risks.
“By putting downward pressure on longer-term interest rates and helping to make financial conditions more accommodative, the Fed’s asset purchases have supported a stronger economic recovery, improved labor market conditions, and helped keep inflation closer to its 2 percent objective,” Yellen said in a Nov. 18 response to Senator David Vitter, a Republican from Louisiana.
The world economy will probably expand 2.7 percent this year and 3.6 percent next year, instead of the 3.1 percent and and 4 percent predicted in May, the Paris-based OECD said in a semi-annual report today.
European shares dropped for the first time in three days after the Stoxx 600 closed yesterday at its highest level since May 2008. The gauge has climbed 15 percent this year and started today trading about 21.2 times its companies’ reported earnings, the highest valuation since December 2009.
“This has been a great year and at some point you might want to take some risk off the table,” said Teis Knuthsen, chief investment officer at Saxo Bank A/S’s private banking unit in Hellerup, Denmark. “Some investors may want to sell into year-end so the upcoming weeks may be less impressive.”
Paddy Power Plc slumped 8.1 percent after the Irish betting company cut its forecast for full-year profit growth. EasyJet Plc climbed 7.1 percent after it proposed a payout of 44.1 pence (71 cents) per share in addition to a regular dividend of 33.5 pence. Europe’s second-biggest discount carrier also said full-year profit jumped 51 percent. Royal KPN NV gained 1.4 percent after Credit Suisse Group AG raised its rating on the phone company to the equivalent of a buy.
The MSCI Emerging Markets Index slipped 0.1 percent after a three-day, 4.6 percent rally. Brazil’s Ibovespa index slid 2.4 percent, while South Korea’s Kospi advanced 1 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong increased 0.5 percent to an eight-month high, while the Shanghai Composite Index slipped 0.2 percent.
Yields on 10-year German bunds rose four basis points, or 0.04 percentage point, to 1.72 percent.
The Australian dollar strengthened against 15 of 16 major peers and its gain versus the dollar was the biggest among major counterparts after Norway’s krone. Norway’s currency advanced 0.6 percent versus the dollar after data showed gross domestic product increased more than economists forecast in the third quarter. The yen lost 0.2 percent at 100.15 per dollar and the euro was up 0.2 percent at $1.3537.
Twelve-month non-deliverable forwards on the yuan appreciated 0.14 percent to 6.1448 per dollar.
China will widen the yuan’s trading band in an “orderly” way as it seeks to enhance the currency’s two-way flexibility, PBOC Governor Zhou Xiaochuan wrote in a book explaining reforms outlined last week following a meeting of Communist Party leaders.
“The implication is that there would be less dollar buying and less dollar-reserve accumulation from the PBOC down the road,” said Valentin Marinov, head of European Group-of-10 currency strategy at Citigroup Inc. in London. “The Aussie could do well as well if the PBOC actions are seen as consistent with growing confidence in the Chinese economy.”
The S&P GSCI index of commodities prices slipped 0.4 percent in a second day of declines, led by natural gas, Brent crude and cattle.
While Brent futures slid 1.3 percent, West Texas Intermediate crude oil climbed 0.3 percent to $93.34 a barrel, rising from a five-month low on speculation demand for oil increased as refineries boosted production after ending seasonal maintenance.
Cattle futures for February delivery lost 1.1 percent to close at $1.31675 a pound by 1 p.m. on the Chicago Mercantile Exchange. The contracts capped the biggest two-day drop in 10 months, falling 2.3 percent, on speculation U.S. beef production is outpacing demand.