U.S. Stocks Retreat While Euro Drops on ECB Rate-Cut BetsJeremy Herron and Joseph Ciolli
Most U.S. stocks fell, erasing earlier gains, as technology shares reversed a morning rebound from a two-day slump and utility and energy companies slid. European equities gained and the euro fell as the region’s central bank signaled it may cut interest rates in June.
The Standard & Poor’s 500 Index lost 0.1 percent to 1,875.63 at 4 p.m. in New York after earlier climbing to within two points of its record close. The Nasdaq Composite Index fell 0.4 percent, reversing a 1 percent gain. The Stoxx Europe 600 Index jumped 1.1 percent while the euro weakened after touching a 2 1/2 year high versus the dollar. Euro-area government bonds rose, sending Spanish and Italian yields to record lows. Nickel added 4 percent; natural gas slid.
Energy, utility and biotechnology shares led declines among 24 industry groups in the S&P 500. European Central Bank President Mario Draghi said the ECB is ready to cut interest rates next month if needed and expressed concern about the euro’s exchange rate. U.S. jobless claims fell more than economists predicted last week. President Vladimir Putin said Russia is testing combat readiness, ramping up tensions after pledging a pullback from Ukraine’s border.
“We continue to see this churning of the market and rotation out of hyper-growth names into value,” Walter Todd, who oversees about $975 million as chief investment officer at Greenwood Capital Associates LLC, said in a phone interview. “The market is looking for new leadership, and utilities and telecom don’t provide that, even though they’ve been the best sectors. It’s trying to find its way to the next catalyst, which is hard to pinpoint at this point.”
Selloffs in technology shares this week have been led by two of the country’s best-known stocks, Twitter Inc., which has declined 18 percent as insiders were freed to sell stock, and Tesla Motors Inc. The Palo Alto, California-based automaker, which reported care deliveries that trailed estimates yesterday, is down 15 percent for the week.
The Dow Jones Internet Composite Index lost 0.3 percent after rising as much as 1.8 percent earlier. The gauge has dropped 5.2 percent in the last two days, led by Groupon Inc., Twitter Inc. and Yahoo! Inc. An exchange-traded fund of social-media companies fell on eight of the past 11 days amid concern that user growth is slowing and valuations have become excessive.
Technology stocks have led this year’s selloff of companies whose growth are more tied to economic swings after a rally drove valuations to about double that of the S&P 500. The Nasdaq Composite is trading at 35 times reported earnings, compared with a multiple of 17.2 for the S&P 500.
The S&P 500 climbed 0.6 percent yesterday amid optimism that the Fed will continue to support the U.S. economy. Phone, financial and consumer-discretionary companies had the biggest gains among 10 groups today, as earnings from Keurig Green Mountain Inc. to 21st Century Fox Inc. topped forecasts. AT&T Inc. led the Dow Jones Industrial Average higher as people with knowledge of the situation said the second-biggest mobile-phone carrier was in talks to buy DirecTV. Walt Disney Co. jumped 1.6 percent after the movie “Frozen” helped earnings increase 27 percent.
Jobless claims fell 26,000 to 319,000 in the week ended May 3 from a revised 345,000 in the prior period, the Labor Department reported today in Washington. The median forecast of 52 economists surveyed by Bloomberg called for a decrease to 325,000.
Fed Chair Janet Yellen said today Treasury yields aren’t likely to increase in the absence of a more robust economic recovery.
“Interest rates are unlikely to begin rising until we are in a strong economic recovery,” Yellen said in response to a question in testimony today to the Senate Budget Committee.
The yield on 10-year Treasury notes was up three basis points at 2.61 percent and climbed as much as four basis points.
ECB officials are debating how much stimulus to give to a euro region economy haunted by the threat of deflation. While Draghi gave no signal that radical moves such as quantitative easing are imminent, new economic forecasts next month may give them the scope to take interest rates into negative territory.
“The Governing Council is comfortable with acting next time, but before we want to see the staff projections that will come out in the early June,” Draghi said at a press conference in Brussels. “There wasn’t a decision today. It’s a preview of the discussion we will have next month.”
The common European currency dropped versus all of its 16 major counterparts except for the Swedish krona as his comments raised the prospect of additional stimulus that tends to weaken foreign exchange rates. The euro dropped 0.4 percent to $1.3849 after appreciating to $1.3993, the strongest level since Oct. 31, 2011.
“It seems the market is making a big bet that the ECB is going to start a QE program pretty soon,” Matt Maley, a Boston-based equity strategist with Miller Tabak & Co., said in a phone interview, referring to stimulus measures known as quantitative easing.
Investors are pouring cash into euro-area bond markets amid optimism the ECB will step in to support the debt. Italy’s 10-year yield fell 10 basis points, or 0.1 percentage point, to 2.92 percent. Spain’s yield decreased nine basis points to 2.88 percent.
More three shares advanced for every one that declined in Europe’s Stoxx 600, with trading volumes in line the 30-day average, data compiled by Bloomberg show. Banks led gains as all 19 industry groups in the Stoxx 600 advanced.
BT Group Plc advanced 2.9 percent as new Internet customers at the biggest U.K. broadband provider boosted profit. Enel SpA increased 5.2 percent after Italy’s biggest utility said profit fell less than analysts had predicted.
Barclays Plc jumped 7.9 percent. The bank will eliminate 14,000 positions across the firm this year, up from the 12,000 cuts it announced in February, Barclays said in a statement.
The MSCI Emerging Markets Index advanced for a third day, climbing 0.5 percent. The Shanghai Composite Index increased 0.3 percent.
China’s overseas shipments increased 0.9 percent from a year earlier, when figures were inflated by fraudulent invoicing, data from the Beijing-based customs administration showed today. That compared with the median estimate for a 3 percent drop in a Bloomberg News survey of analysts. Imports gained 0.8 percent, leaving a trade surplus of $18.46 billion.
Russia’s ruble erased gains after Ukraine’s Donetsk region said it will go ahead with a referendum set for May 11. Putin called yesterday for separatists in Ukraine to delay the vote, triggering the biggest jump in seven weeks in the benchmark equity gauge.
The ruble dropped 0.4 percent against the dollar while the Micex Index of stocks added 0.6 percent after gaining as much as 1.5 percent.
Putin said today that Russia is testing its army’s combat readiness after pledging yesterday a pullback from Ukraine’s border in addition to the call to delay this weekend’s referendums by separatists. NATO said there’s no sign of any Russian withdrawal from the frontier.
Thailand’s baht fell to a one-month low after a court ruling to remove Yingluck Shinawatra as prime minister worsened the nation’s political crisis.
Vietnam’s VN Index fell 5.9 percent, the biggest retreat since October 2001, after the government said yesterday that Chinese boats intentionally rammed Vietnamese vessels during a confrontation over the placement of an exploration rig by China in waters near the Paracel Islands, claimed by both countries.
Nickel climbed as much as 6.1 percent to $19,786 a metric ton, the highest since March 2012 as Vale SA was told to suspend mining in New Caledonia. The suspension was ordered after a spill, according to the island nation’s Southern Province government.