U.S., Emerging Shares Slip on Services as Yen StrengthensStephen Kirkland and Nick Taborek
U.S. stocks fell a third day and the gauge for emerging-market shares dropped to a four-month low while the yen gained with Treasuries as data showed growth in the services industries in America and China slowed.
The Standard & Poor’s 500 Index slipped 0.3 percent to a two-week low of 1,826.77 by 4:36 p.m. in New York. The MSCI Emerging Markets Index lost 0.7 percent. The yen climbed against 15 of 16 major peers, while South Korea’s won slumped. The yield on 10-year Treasuries fell four basis points to 2.96 percent. Nickel, lead and cocoa drove commodity declines while coffee jumped a third day, rising to the highest close since September.
U.S. equities have fallen the first three trading days of 2014, the first time that’s occurred since 2005, following the biggest yearly gain for the S&P 500 since 1997. A private gauge of China’s services sector dropped for December, following declines in indexes of manufacturing. U.S. services growth unexpectedly weakened last month while factory orders rose more than forecast in November, reports today showed. Janet Yellen is set to be confirmed as Federal Reserve chairman today.
“We’re overdue for a relatively significant correction in the stock market, based on the fact that most investors are pretty bullish right now,” Michael Mullaney, who oversees more than $10 billion as Boston-based chief investment officer for Fiduciary Trust Co., said by phone. “We think that’s a buying opportunity.”
Valuations in the S&P 500 increased by the most since the financial crisis last year as 460 stocks rose, more than any year since at least 1990. The S&P 500 rallied 30 percent in 2013.
Six of 10 main S&P 500 groups retreated today, with industrial and raw-materials companies dropping at least 0.6 percent to pace losses. Microsoft Corp., Caterpillar Inc. and Dupont Co. all fell more than 1.2 percent to lead the Dow Jones Industrial Average 0.3 percent lower.
Twitter Inc. lost 3.9 percent after Morgan Stanley said investors should sell shares as the microblogging service may lose online advertising revenue to larger rivals like Facebook Inc. Whole Foods Market Inc. slid 3.5 percent as an analyst report cited risks from increased competition.
Wells Fargo & Co. strategist Gina Martin Adams joined her counterparts at Deutsche Bank AG and Stifel Nicolaus & Co. in predicting the S&P 500 will end 2014 little changed at 1,850, compared with its 2013 close of 1,848.36. That marks the lowest among 21 forecasts compiled by Bloomberg.
Martin predicted a 2013 close of 1,390 at the beginning of last year, the most pessimistic of 15 strategist estimates at the time and 25 percent below its actual close.
Jonathan Golub, RBC Capital Markets LLC’s chief strategist, raised his year-end target for the equities benchmark to 2,075, signaling a gain of 12 percent. That’s the second-most bullish of the forecasts compiled by Bloomberg.
“We believe a slower, extended economic recovery provides a supportive backdrop for stocks,” Golub wrote in a note to clients today. His prior 2014 target, from Oct. 2, was 1,950.
While Wall Street strategists are the most cautious in almost a decade after the broadest U.S. rally on record sent price-earnings ratios up 19 percent, expanding multiples have preceded advances twice as often as they have retreats, data compiled by Bloomberg show.
Since 1936, the S&P 500 has risen 69 percent of the time following quarters when valuations widened, the data show. The average return is 14 percent in years after more than 400 constituents climbed, according to data compiled by Strategas Research Partners.
Markets for stocks, currencies, bonds and commodities are the calmest in at least 12 years amid investor confidence that central bank stimulus is spurring economic growth.
Expectations for price swings have fallen to the lowest level on record for 29 assets, including U.S. equities, interest rates, the euro and oil, based on data since 2002 compiled by New York-based hedge fund Lake Hill Capital Management LLC. The implied volatility, a gauge of options prices, for the markets reached an average of 15.3 Nov. 22, compared with an all-time high of 44.2 in 2008, data on two-month exchange-traded contracts show.
Headwinds for the U.S. economy may be abating, outgoing Fed Chairman Ben S. Bernanke said Jan. 3. A report today showed the Institute for Supply Management’s non-manufacturing index decreased to 53 in December from 53.9 in the prior month. The median projection in a Bloomberg survey of 69 economists was 54.7. U.S. factory orders rose 1.8 percent in November, compared with the median forecast of 1.7 percent.
Yellen is poised to be confirmed by the U.S. Senate today. The Fed starts reducing this month a bond-buying program that has stoked demand for emerging-market and other higher-yielding assets.
The Stoxx Europe 600 Index dropped 0.2 percent today, after ending last week lower by less than one point after jumping 17 percent in 2013.
Remy Cointreau SA lost 2.1 percent after Natixis SA downgraded the stock following the resignation of its chief executive officer. Edenred SA, a provider of vouchers for eye tests, dropped 5.5 percent after Natixis reduced its rating.
RSA Insurance Group Plc jumped 6.2 percent after a U.K. newspaper said a probe into the insurer’s operations will show that it won’t require further writedowns.
In Asia, the Nikkei 225 Stock Average sank 2.4 percent in Tokyo, the most since Oct. 25, in the market’s first day of trading for 2014. The gauge closed at six-year high Dec. 30, the last trading day for Japanese stocks in 2013.
The Shanghai Composite Index lost 1.8 percent to close at the lowest level since August. The Hang Seng China Enterprises Index of mainland Chinese shares traded in Hong Kong sank 1.4 percent, extending last week’s 3.6 percent retreat that was the most since October.
A China services purchasing-managers’ index declined to 50.9 in December from 52.5 in November, according to a report by the HSBC Holdings Plc and Markit Economics Ltd. today. Data last week showed official gauges of China’s manufacturing and services industries fell in December to four-month lows.
President Xi Jinping is rolling out the biggest economic reforms since at least the 1990s to support a transition from export-led growth to domestic consumption in China.
“There’s a lot of uncertainty about what the reform will do to growth,” Francis Cheung, head of China and Hong Kong strategy at CLSA Asia-Pacific Markets, said in a Bloomberg TV interview.
India’s S&P BSE Sensex Index slid to a three-week low after data showed the nation’s services index contracted for a sixth month. Russia’s Micex Index dropped 2.5 percent, the most since November, on the first day of trading this year.
Japan’s currency strengthened against all but South Africa’s rand among its 16 major peers, gaining 0.3 percent per euro. The dollar slipped 0.3 percent to $1.3631 versus Europe’s shared currency after appreciating to $1.3572, the strongest level since Dec. 5.
The won dropped 1 percent to 1,065.42 per dollar after sliding to 1,067.65, the weakest intraday level since Nov. 15. South Korean President Park Geun Hye said a weaker yen puts a burden on his nation’s economy, and companies should respond to the yen’s slide by cutting costs and restructuring to boost competitiveness.
The Thai baht sank to its lowest level since 2010 versus the greenback as two months of political protests sapped investor confidence and the Fed prepared to start paring stimulus. Turkey’s lira rebounded, gaining 0.4 percent after earlier weakening to a record-low 2.1948 per dollar.
The rand rallied against the greenback after four days of declines, gaining 1.1percent after Moody’s Investors Service said the nation would probably retain its investment-grade credit rating.
Ten-year German bund yields fell four basis points, or 0.04 percentage point, to 1.91 percent. The yield on similar-maturity U.K. gilts slid five basis points to 2.97 percent. Italian 10-year securities dropped for the first time in three days, with yields rising two basis points to 3.94 percent.
The cost of insuring against losses on corporate bonds traded near the lowest in almost four years. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies decreased almost 1 basis point to 69 basis points.
The S&P GSCI gauge of 24 commodities fell 0.1 percent, a fifth day of weakness as nickel, lead and cocoa dropped at least 0.5 percent.
Coffee jumped 4 percent, capping its biggest three-session rally in 15 months, on concern global supplies will tighten on potentially lower-than estimated production in Brazil, the world’s biggest grower of the crop. Corn and cotton rose more than 0.8 percent.
Natural gas futures were little changed, up 20 percent since Nov. 1. The commodity fluctuated today amid speculation extreme cold weather in the U.S. this week could be followed by a period of milder weather, cutting demand for the heating fuel. West Texas Intermediate crude oil declined 0.6 percent to $93.43 a barrel, extending last week’s 6.3 percent slide.