U.S. Stocks Erase Gains on Index Changes; Treasuries Rise

U.S. stocks erased gains as investors sold equities in the final 30 minutes of trading before changes to MSCI Inc. indexes, trimming an earlier rally after improved housing data. Treasuries advanced while Europe’s benchmark gauge fell for the first time in three days.

The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,802.75 by 5 p.m. in New York, paring a gain of as much as 0.3 percent, while the Nasdaq Composite Index closed above 4,000 for the first time since 2000. The Stoxx Europe 600 Index lost 0.6 percent. Five-year U.S. Treasury yields slid three basis points to 1.31 percent on stronger-than-forecast auction demand. The euro and the yen gained 0.5 percent versus the dollar, while crude oil slipped a third day and silver sank.

U.S. stocks pared gains at the end of the session as investors moved to mimic a rebalancing in MSCI indexes that took effect at the close. Apple Inc. and Exxon Mobil Corp. were among equities that experienced the biggest drop in weightings, according to Societe Generale SA. Home prices in 20 U.S. cities rose by the most since February 2006 in the 12 months through September, data today showed, while American consumer confidence unexpectedly fell in November to a seven-month low.

“This continues to be a strong market into the end of year,” Jason Cooper, a money manager who helps oversee $2.5 billion in South Bend, Indiana, at 1st Source Investment Advisors, said in a phone interview. “I don’t think anybody would have guessed we’d be at the rate we are at today and I still believe there are people out there concerned that we can fall back down. If the market continues, those who are late to the game at some point have to make a decision to possibly go into the equity market.”

MSCI Changes

More than $8 trillion has been added to the value of global equities this year, the biggest increase since 2009, as central banks took steps to shore up economies worldwide. The S&P 500 is poised for its best annual performance since 1998, with an increase of 26.4 percent, and trades for about 17 times member companies’ reported earnings, data compiled by Bloomberg show.

Apple -- among the five biggest MSCI weighting decreases in the U.S., according to Societe Generale -- closed 1.8 percent higher at its strongest price since January, while Exxon Mobil fell 0.9 percent. Oracle Corp., whose weighting was also cut by MSCI, rose for the first time in three days, adding 0.4 percent.

MSCI made the changes after a semi-annual review. Amendments to indexes can alter share prices as passively managed funds buy and sell stocks to mirror the benchmark gauges.

Asian Futures

Hewlett-Packard Co. gained more than 6 percent in extended trading after reporting after markets closed sales and profit that exceeded analysts’ estimates. Tiffany & Co. jumped 8.7 percent after profit topped projections and the jeweler boosted its earnings forecast. Jos. A. Bank Clothiers Inc. surged 11 percent after Men’s Wearhouse Inc. offered to buy the apparel company for about $1.54 billion.

Lennar Corp. and PulteGroup Inc. climbed at least 4.4 percent, leading a rally among homebuilders. Technology shares rose 0.4 percent as a group in the S&P 500.

Asian index futures dropped, with contracts on Japan’s Nikkei 225 Stock Average declining 0.6 percent to 15,420 by 3 a.m. in Osaka, and trading at 15,415 in Chicago from 15,520 yesterday in Japan. Futures on Australia’s S&P/ASX 200 Index lost 0.3 percent, while contracts on South Korea’s Kospi Index dropped 0.2 percent. The Bloomberg China-US Equity Index of the most-traded Chinese stocks in New York climbed 0.8 percent.

Fed Outlook

While the S&P 500’s valuation is at the highest level since May 2010, it’s still below multiples reached at the market’s two previous peaks, when the valuation reached 17.5 in October 2007 and 31 in March 2000, data compiled by Bloomberg show.

Three rounds of Federal Reserve bond purchases have helped push the S&P 500 up 166 percent from a bear-market low reached in 2009. Four out of five investors expect the Fed to put off a decision to begin reducing the stimulus until March 2014 or later, according to a Bloomberg Global Poll on Nov. 19.

Policy makers have been scrutinizing data to determine whether the U.S. economy is strong enough to withstand a reduction in the $85 billion a month in bond buying.

The S&P/Case-Shiller index of U.S. property values advanced 13.3 percent after increasing 12.8 percent a month earlier. More applications for home construction were issued in October than at any time in the past five years, figures from the Commerce Department showed today. The agency postponed publishing housing-starts data due today to Dec. 18 because of a lapse in funding after a 16-day partial government shutdown last month.

Goldman’s Take

The Conference Board’s confidence index fell to 70.4 from a revised 72.4 a month that was stronger than initially estimated, the New York-based private research group said today. The median forecast in a Bloomberg survey of 78 economists called for a November reading of 72.6. The overall business activity index for mid-Atlantic region factories rose to 13 in November, according to the latest report from the Fed Bank of Richmond.

The S&P 500 will probably fall 10 percent in the next 12 months before rebounding to end the year at 1,900, according to Goldman Sachs Group Inc. The forecast from the New York-based firm implies about a 5 percent advance from today’s level. The 25 months since the S&P 500’s last 10 percent drop is the longest stretch without such a decline since 2007, according to S&P.

‘Better’ Economy

“It will be less smooth sailing,” David Kostin, the bank’s chief U.S. equity strategist, said on Bloomberg TV’s “Market Makers” program. “The likelihood is we will have something that will prompt a reduction -- a retreat in the market. But overall the market should be rising, and that’s because the U.S. economy will be getting better.”

Treasuries rose for a fourth day as the government’s auction of $35 billion in five-year notes attracted higher-than-projected demand as investors bet the Fed will keep short-term borrowing rates low.

The notes were sold at a yield of 1.340 percent, compared with a prediction of 1.347 percent in a Bloomberg News survey of nine of the Fed’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.61 versus an average of 2.67 for the past 10 sales.

European Moves

“It’s been one of the biggest beneficiaries of the expectation that the Fed is going to be lower for longer,” said Thomas Tucci, managing director and head of Treasury trading in New York at CIBC World Markets Corp. “The economy isn’t at escape velocity and won’t be for some time.”Treasuries gained after the U.S. sale of $35 billion of five-year notes drew a lower-than-forecast yield.

Yields on 10-year Treasury notes fell two basis points, or 0.02 percentage point, to 2.71 percent.

Remy Cointreau SA led European shares lower after the maker of Remy Martin cognac said it expects a “substantial” drop in annual earnings, while Hugo Boss AG postponed a profitability target.

More than three shares fell for every two that gained in the Stoxx 600, which closed yesterday within 0.2 percent of a five-year high reached on Nov. 18. Trading volumes were 22 percent above the 30-day average today, data compiled by Bloomberg show. The gauge has climbed 15 percent in 2013, headed for its best year since 2009.

Emerging Markets

Remy lost 8.3 percent after posting first-half adjusted operating profit that declined 7.3 percent to 132.7 million euros ($179.5 million) on an organic basis. Hugo Boss, the German luxury-clothing maker controlled by buyout firm Permira Advisers LLP, fell 2.1 percent.

Repsol SA advanced 4.3 percent after the governments of Spain and Argentina reached a preliminary agreement to compensate the Madrid-based oil company for its stake in YPF SA.

The MSCI Emerging Markets Index slipped 0.5 percent after two days of gains.

The Jakarta Composite Index sank 2.3 percent to an 11-week low and the rupiah slipped 0.4 percent versus the dollar to the weakest level since March 2009. The government raised $190 million yesterday by selling dollar-denominated bonds to local investors, who submitted $294 million of bids, short of the $450 million goal, said Robert Pakpahan, the director general at Indonesia’s debt management office.

Euro Climbs

South Africa’s benchmark gauge slid 1.3 percent after a report showed the economy grew at the slowest pace in four years. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong decreased 0.8 percent, led by China Petroleum & Chemical Corp. as the government detained seven people for their role in a deadly pipeline explosion.

The euro strengthened against 14 of its 16 major counterparts, strengthening to $1.3572. The European Central Bank doesn’t see deeper disinflation, ECB Executive Board member Benoit Coeure said on CNBC today, after China’s central bank governor said the euro was important to his nation’s reserve management.

“Large central banks around the world are looking to diversify their dollar holdings, in part in favor of the euro,” said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London. “When ECB members are doubting disinflation concerns and giving more upbeat growth expectations this also boosts the euro.”

The yen gained for the first time in four days versus the greenback, appreciating to 101.28 per dollar.

Commodity Markets

West Texas Intermediate oil declined for a third day, losing 0.4 percent to $93.68 a barrel in New York on projections a government report tomorrow will show U.S. crude inventories advanced for a 10th week.

The Energy Information Administration will probably say crude inventories rose 750,000 barrels last week, according to the median of 11 responses in a Bloomberg survey. Stockpiles of distillate fuel fell to a five-year low, the survey showed. Prices slipped yesterday after Iran and world powers reached an interim agreement on Nov. 24 to restrict the country’s nuclear program.

Silver slid 1.9 percent, after gaining about the same amount yesterday, while spot gold dropped 0.7 percent, falling for the first time in three days.

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