BLBG: U.S. Stocks Fall as Commodities Decline on China Concern
U.S. stocks declined, snapping a three-day advance for the Standard & Poor’s 500 Index, as commodities fell on concern about a Chinese economic slowdown.
Industrial and commodity shares slumped as China raised fuel prices by the most in two years and BHP Billiton Ltd. said the nation’s steel production is slowing. Caterpillar Inc. and Alcoa Inc. (AA) dropped more than 1.5 percent. Adobe Systems Inc. (ADBE) sank 3.5 percent as its profit forecast missed some estimates. Tiffany & Co. (TIF) surged 6.1 percent after forecasting profit that beat projections. Bank of America Corp. jumped 4.1 percent.
The S&P 500 lost 0.5 percent to 1,403.16 at 11:03 a.m. New York time. The benchmark gauge yesterday rose to the highest level since May 2008. The Dow Jones Industrial Average declined 69.63 points, or 0.5 percent, to 13,169.50. The Russell 2000 Index of small companies slid 0.8 percent to 830.71. About 2 billion shares changed hands on U.S. exchanges today.
“A Chinese slowdown is inevitable,” Peter Jankovskis, who helps manage about $2.9 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “It’s possible that will take some of the heat out of commodities as they are the driver of demand. Yet China is not the only growth story out there. China will continue to be an important player, but the U.S. economy seems to have found its legs.”
Equities fell as China is raising fuel prices for the second time in less than six weeks. The nation’s vehicle sales may miss industry forecasts this year as economic growth slows, an official from the China Association of Automobile Manufacturers said. BHP Billiton Ltd. (RIO), the world’s biggest mining company, said China’s steel production is slowing. In the U.S., data showed housing starts fell from a three-year high.
$3.6 Trillion
Today’s decline trimmed this year’s gain in the S&P 500 to 12 percent. More than $3.6 trillion was restored to U.S. equity values since last year’s low for the benchmark gauge in October. The rally drove the index to 14.6 times reported earnings yesterday, the highest valuation level since July.
Companies which are most dependent on economic growth had the biggest declines in the S&P 500. The Morgan Stanley (MS) Cyclical Index slumped 0.8 percent. The Dow Jones Transportation Average retreated 1.2 percent. A gauge of homebuilders in S&P indexes dropped 1.2 percent as 10 of its 11 stocks fell.
Measures of industrial and commodity shares in the S&P 500 dropped at least 0.5 percent. Caterpillar (CAT), the world’s biggest maker of construction and mining-equipment, slumped 2.1 percent to $111.30. Alcoa Inc., the largest U.S. aluminum producer, slid 1.5 percent to $10.44.
Adobe, Disney
Adobe sank 3.5 percent to $33.30. Excluding some costs, profit will be 57 cents to 61 cents a share in the second quarter, Adobe said. The midpoint of that range -- 59 cents -- missed the 60 cents predicted by analysts, according to data compiled by Bloomberg.
Walt Disney Co. (DIS) dropped 0.7 percent to $43.14. The world’s largest entertainment company said the box-office disappointment “John Carter” will post a loss of about $200 million, possibly the biggest ever for a single film.
The KBW Bank Index (BKX) rose 0.5 percent. Bank of America rallied 4.1 percent, the most in the Dow, to $9.92. Goldman Sachs Group Inc. (GS) advanced 2.4 percent to $127.31. Morgan Stanley gained 2.5 percent to $20.57. Zions Bancorporation (ZION) slumped 1.5 percent to $22.30.
Jefferies Group Inc. (JEF) climbed 2.2 percent to $19.47. The investment bank that surged by almost half during the fiscal first quarter reported a profit decline that was smaller than analysts estimated as net revenue climbed to a record.
Tiffany Surges
Tiffany rallied 6.1 percent to $72.90. The company is benefiting from stock-market gains that have prompted luxury consumers to resume jewelry purchases, a turnabout from January, when the retailer said weak spending from U.S. customers had slowed holiday sales.
U.S. stocks posted the best returns when 10-year Treasury yields rose to close to 4 percent, according to a study by Standard & Poor’s that tracked market performance since 1953.
The S&P 500 (SPX) advanced 1.7 percent a month on average during periods when 10-year yields climbed to a range of 3 percent to 4 percent, according to data compiled by New York-based S&P. That’s the best performance among six categories of rising yields studied by the firm. Stocks began to fall when yields exceeded 6 percent, the study found.
While rising yields tend to boost borrowing costs for companies and act as “a depressant in intrinsic value calculations,” they can also suggest a strengthening economy and prompt investors to switch to equities, according to Sam Stovall, S&P’s chief equity strategist.
“The ‘sweet spot’ for equity prices appears to be a rising rate environment between 3 percent and 4 percent, as a growing economy reduces unemployment while increasing corporate earnings, yet does not trigger growth-slowing efforts by the central bank,” Stovall wrote in a report yesterday.
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
