Stocks Tumble, Yen, Treasuries Advance on Recovery Concern
By Michael P. Regan and Nikolaj Gammeltoft
July 16 (Bloomberg) -- Stocks sank, the yen rose to a 2010 high versus the dollar and two-year Treasury yields hit a record low as lower-than-estimated revenue at companies from Bank of America Corp. to General Electric Co. and a slump in consumer confidence fanned concern the economic rebound is slowing.
The Standard & Poor’s 500 Index lost 2.2 percent to 1,072.64 at 1:36 p.m. in New York, wiping out its weekly advance. The two-year yield slid to 0.5765 percent and the yen appreciated as much as 1.1 percent to 86.27 per dollar, the strongest level since Dec. 1. Crude oil dropped below $76 a barrel, while copper and tin led a retreat in industrial metals. Spain’s 10-year bonds rallied for a second day after yesterday’s 3 billion-euro ($3.9 billion) debt sale.
The S&P 500 erased gains from a late-day rebound yesterday that came as the government settled its fraud lawsuit against Goldman Sachs Group Inc. and BP Plc stopped the flow of oil from its leaky Gulf of Mexico well. Ten-year Treasury yields held below 3 percent for a second day after reports showed consumer prices declined in June and confidence slumped in July to the lowest level in a year.
“The macro news isn’t too good and the consumer confidence number is piling onto that,” said Scott Armiger, who helps manage about $5.6 billion at Christiana Bank & Trust in Greenville, Delaware. “People were hanging their hats on earnings consistently meeting expectations, but instead we’re getting a mix of hits and misses.”
Financials Sink
Financial shares sank 3.4 percent collectively to lead declines among all 10 industry groups in the S&P 500. The Dow Jones Industrial Average lost 225.99 points, or 2.2 percent, to 10,133.32 for its biggest drop of the month.
Bank of America plunged 8.1 percent and Citigroup Inc. lost 4.4 percent after revenue trailed analyst estimates and their loan books shrank, a sign volatile markets and a slowdown in the economic rebound may be keeping borrowers away.
Banks and credit-card lenders also slumped on concern new financial regulations will crimp earnings, with Visa Inc. and MasterCard Inc. losing at least 4 percent. Under the overhaul Congress sent to President Barack Obama yesterday, the Federal Reserve will get authority to limit interchange, or “swipe” fees, that merchants pay for debit-card transactions. The bill will let retailers refuse credit cards for purchases under $10 and offer discounts based on the form of payment.
Google Inc. slumped 5.5 percent after profit trailed estimates following a surge in spending on acquisitions and staff to grow in new markets such as mobile marketing and display advertising. S&P 500 technology shares slumped 2.4 percent as a group.
Rebound Stalls
The S&P 500 climbed 7.2 percent from a 10-month low on July 2 through yesterday amid optimism that corporate earnings will signal the economic recovery will be sustained.
S&P 500 companies are projected to increase profits by 34 percent in 2010 and 18 percent in 2011, the fastest two-year gain since 1995, according to analysts’ estimates compiled by Bloomberg. Of the 23 companies in the S&P 500 that have reported profits since July 12, all but three have topped forecasts for earnings-per-share, Bloomberg data show.
The yen strengthened against all 16 major counterparts, climbing 3.5 percent versus the New Zealand dollar and more than 2.3 percent versus the Australian, Canadian and Norwegian currencies.
Confidence, Prices
Treasuries extended gains after the Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 66.5, the lowest since August 2009, from 76 in June. The reading was lower than the most pessimistic forecast of economists in a Bloomberg News survey with a median projection of 74.
Consumer prices fell 0.1 percent, a third straight decrease and matching the median forecast. The so-called core rate of the consumer-price index increased 0.2 percent, the most since October and exceeding the 0.1 percent gain projected by the median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed.
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., boosted holdings of government-related debt to the highest level in eight months as the U.S. recovery showed signs of waning.
The $234 billion Total Return Fund’s investment in the debt was increased to 63 percent of assets in June, from 51 percent the previous month, according to the website of Newport Beach, California-based Pimco. The firm doesn’t comment directly on monthly changes in portfolio holdings.
Default Swaps
A benchmark indicator of corporate credit risk in the U.S. climbed for the third time this week. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 1.3 basis point to a mid-price of 109.2 basis points as of 9:15 a.m. in New York, according to index administrator Markit Group Ltd.
The MSCI World Index of stocks in 24 developed nations lost 2 percent, its biggest drop this month. The MSCI Asia Pacific Index lost 0.6 percent, wiping out most of its gain for the week, as technology stocks declined. Hynix Semiconductor Inc. slumped 6.6 percent. Sony Corp. lost 5 percent. The MSCI Emerging Markets dropped for a second day, falling 0.8 percent.
Spain’s 10-year bond yield decreased 16 basis points to 4.46 percent, adding to yesterday’s 11 basis point drop, as its sale of debt eased concern the nation will struggle to finance its budget deficit.
Crude oil for August delivery dropped 1.4 percent to $75.54 a barrel on the New York Mercantile Exchange. Copper for three- month delivery fell 2.8 percent to $6,490 a metric ton on the London Metal Exchange. Gold for immediate delivery dropped 1.5 percent to $1,189.90 an ounce.
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