U.S. Stocks Fall, Bonds Erase Losses on Ukraine TensionJoseph Ciolli and Jeremy Herron
U.S. stocks fell, with the Standard & Poor’s 500 Index sinking to the lowest since May, amid concern that tension in Ukraine may escalate. The dollar rose after American services data added to evidence growth is gathering pace.
The Standard & Poor’s 500 Index slid 1 percent, while the dollar strengthened to an almost nine-month high versus the euro. Treasury two-year note yields touched the lowest level in more than two weeks at 4:43 p.m. in New York. Ten-year yields trimmed earlier gains sparked by speculation interest rates may rise early next year. U.S. crude tumbled to a six-week low.
President Vladimir Putin ordered the government to prepare a response to U.S. and European sanctions as Poland warned that a renewed buildup of Russian troops on Ukraine’s border raises the specter of a possible invasion. Service industries in the U.S. expanded in July at the fastest pace since December 2005, driving speculation economic growth is robust enough for the Federal Reserve to raise its benchmark interest rate before the middle of 2015.
“The market had been jittery,” Lou Shaduk, managing director of equity trading at Stifel Nicolaus & Co. in Baltimore, said in an interview. “You have Polish Minister Sikorski talking about Russian forces poised to pressure or invade Ukraine and that’s all the buyers needed today to go into hiding.”
The S&P 500 extended losses and Treasuries reversed after Polish Foreign Minister Radoslaw Sikorski said Russia had restored its combat readiness on the Ukraine border. He did not give any indication that an incursion was imminent.
Putin is showing no sign of backing down since the U.S. and the European Union tightened sanctions last week, with Russia massing forces on its neighbor’s border in the biggest military buildup since troops were withdrawn from the area in May.
Selling accelerated after the S&P 500 slipped below last week’s closing level of 1,925.15 and yesterday’s intraday low of 1,921.2. The gauge has lost 3.4 percent since reaching a record high of 1,987.98 on July 24 and came within 70 points of erasing its gain for the year.
“I would attribute the dip in S&P to the rumor that Russia’s getting ready to invade Ukraine,” Walter “Bucky” Hellwig, a Birmingham, Alabama-based senior vice president at BB&T Wealth Management, said by phone. “That created additional technical difficulties with high-frequency trading.”
Among stocks moving today, Target Corp. lost 4.4 percent after cutting its estimate for second-quarter profit on an expense stemming from a December data breach. Pioneer Natural Resources Co. sank 5.7 percent and Halliburton Co. dropped 3.4 percent to lead an index of energy stocks lower by 2.1 percent, the most among 10 S&P 500 groups.
U.S. airline stocks followed European carriers lower after business newspaper Vedomosti reported Russia may limit or ban trans-Siberian flights by European Union airlines, citing people familiar with the matter. Delta Air Lines Inc. fell 2.8 percent and United Continental Holdings Inc. slid 3.5 percent.
Treasuries retreated with equities earlier in the day as concern grew that the improving U.S. economy may force the Fed to act on rates sooner than anticipated, as the central bank remains on pace to wind down its monthly bond purchases in October. Fed Chair Janet Yellen has said officials will keep its benchmark low for a “considerable time” after the bond buying ends.
The pickup among service providers, combined with the strongest rate of growth in more than three years at American factories, shows the world’s largest economy was strengthening at the start of the third quarter. Faster payroll growth is helping fuel consumer demand, raising the odds a self-reinforcing cycle of increased hiring and spending is under way.
The Bloomberg Dollar Spot Index rose to the highest level in five months as the greenback appreciated 0.3 percent to $1.3375 per euro. The yen reversed an earlier decline against the dollar on haven demand amid the tension over Ukraine.
“In the last couple weeks we’ve been getting reports that the economy is definitely recovering,” John Fox, director of research at Fenimore Asset Management in Cobleskill, New York, said in a phone interview. “People are now focusing on the fact that the Fed isn’t going to be this accommodative forever.”
The stimulus and better-than-forecast corporate earnings have propelled the S&P 500 higher by as much as 194 percent since a bear-market low in March 2009. Hedge-fund manager David Einhorn is struggling to find value amid the five-year rally that pushed equity valuations to near the highest since 2010.
“We had a difficult time finding new investments this quarter,” Einhorn said today on a conference call discussing results at Greenlight Capital Re Ltd., the Cayman Islands-based reinsurer where he is chairman. “As the market continues to rise in the face of conflicting economic data, global unrest, and looming overdue Fed exit from quantitative easing we remain cautiously positioned.”
The S&P 500 gained 0.7 percent yesterday, rebounding from the worst week since 2012, as Portugal’s bailout of Banco Espirito Santo SA eased concern about Europe’s most indebted lenders, while earnings from companies including Berkshire Hathaway Inc. beat estimates. The index sank 2.7 percent last week, its worst since June 2012. It has gone without a 10 percent correction since 2011.
“The market is down on fears that Russia is going to invade Ukraine,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in an interview. “There was a feeling amongst traders that yesterday’s rally didn’t have sustainability. People came in today unimpressed with yesterday’s strength so we were sitting on wobbly legs even before this chatter around Ukraine came out.”
West Texas Intermediate crude slid 0.9 percent to close at $97.38. Refineries probably operated at 92.8 percent of capacity on Aug. 1, down 0.7 percentage point from the prior week, according to a Bloomberg survey before a government report tomorrow.
Silver slid to a six-week low, while platinum and palladium retreated as the dollar’s advance reduced the appeal of commodities as investments.
Copper sank 1.2 percent to settle at $3.2045 a pound in New York, leading industrial metals lower after data from China, the world’s biggest consumer of commodities, showed growth in the country’s services industries slowed. Zinc and lead retreated in London.
China’s non-manufacturing sector stagnated in July as a private index fell to a record low, suggesting the government’s stimulus measures are failing to gain traction outside manufacturing. A gauge of Chinese shares in Hong Kong slid 0.7 percent.