Stocks Drop, Led By Technology Shares; Euro, Commodities Rise
July 29, 2010, 4:22 PM EDTBy Rita Nazareth and Kelly Bit
July 29 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 Index lower for a third day, as earnings and forecasts disappointed investors at technology and consumer companies. A gauge of commodities rose to a 12-week high on speculation the economic recovery will boost demand.
The S&P 500 slipped 0.4 percent to 1,101.5 at the 4 p.m. in New York, trimming its July advance to 6.9 percent. The Stoxx Europe 600 Index fell 0.4 percent, wiping out earlier gains that sent the gauge above its highest close in 12 weeks. The euro rose to $1.31 for the first time since May as a gauge of European economic confidence climbed to a two-year high. The Reuters/Jefferies CRB Index of raw materials jumped 1.5 percent.
Technology shares were the biggest drag on the S&P 500 after Akamai Technologies Inc. said profit margins shrank, while Nvidia Corp. and Symantec Corp. slid on profit forecasts. Colgate-Palmolive Co. helped lead makers of consumer staples lower after earnings trailed estimates. Equities also slid amid concern government data tomorrow will show the economic recovery is slowing.
“There’s enough nervousness out there -- sentiment is extraordinarily tentative,” said Robert Weissenstein, who oversees $130 billion as chief investment officer at Credit Suisse Group AG’s private banking unit in New York. “Even in the face of good news there’s a hesitation to embrace that.”
Earlier gains in equities followed better-than-estimated earnings at companies from Exxon Mobil Corp. to AstraZeneca Plc, a decrease in U.S. jobless claims and an improving outlook for Europe’s economy. About 70 percent of companies in the MSCI World Index have reported better-than-projected profit so far in the second-quarter reporting season, according to data compiled by Bloomberg.
Economy Concern
The S&P 500 has lost 1.2 percent over the past three days as a slump in consumer confidence and a drop in durable goods orders spurred concern the economic rebound is slowing as the government unwinds stimulus programs. A Commerce Department report tomorrow may show U.S. growth slowed to 2.6 percent in the second quarter, from 2.7 percent in the first, based on the median forecast of economists in a Bloomberg survey.
Jan Hatzius, chief U.S. economist for Goldman Sachs Group Inc., said in a note to clients that the unwinding of federal and state stimulus spending is likely to reduce gross domestic product by 1.7 percentage points in 2011 after boosting growth by 1.3 percentage points between early 2009 and early 2010.
Treasury seven-year security yields lost 4 basis points, or 0.04 percentage point, to 2.36 percent. They pared declines that had sent the yield as low as 2.33 percent after the U.S. sold $29 billion of seven-year debt in the last of three note auctions this week totaling $104 billion.
7-Year Auction
Federal Reserve Bank of St. Louis President James Bullard said the central bank should resume purchases of Treasury securities if the economy slows and prices fall rather than maintain a pledge to keep rates near zero.
“The U.S. is closer to a Japanese-style outcome today than at any time in recent history,” Bullard said, warning in a research paper released today about the possibility of deflation. “A better policy response to a negative shock is to expand the quantitative easing program through the purchase of Treasury securities.”
Default Swaps Retreat
A benchmark indicator of corporate credit risk in the U.S. approached the lowest in 11 weeks. 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, decreased 1.2 basis points to a mid-price of 103.94 basis points, according to index administrator Markit Group Ltd.
The cost of insuring against losses on European bank bonds fell, heading for a record monthly decline, according to traders of credit-default swaps. The Markit iTraxx Financial Index of swaps linked to 25 banks and insurers decreased 2 basis points to 113.5 at 4:02 p.m. in London, according to JPMorgan Chase & Co. The gauge is down 51.5 basis points this month and near the lowest level since April 21.
The dollar fell against 14 of 16 major currencies, sliding at least 0.6 percent against the euro and the yen, and slipping 1.5 percent against the Swiss franc.
The euro climbed against nine of 16 currencies, rallying more than 1 percent versus the New Zealand dollar and at least 0.6 percent versus the pound and South Africa’s rand.
European Confidence Rises
European confidence in the economic outlook rose to the highest in more than two years in July and German unemployment declined for a 13th month as exports sustained a recovery in the region. An index of executive and consumer sentiment in the 16 euro nations increased to 101.3 from 99 in June, the European Commission in Brussels said today. That’s the highest since March 2008.
Crude oil rose for the first time in a week in New York, climbing 1.8 percent to $78.36 a barrel. Copper for September delivery jumped 1.4 percent to $3.29 a pound after touching $3.297, the highest level for a most-active contract since May 4. Coffee, gaining as much as 4.3 percent, approached a 12-year high. Wheat headed for the biggest monthly gain since 1973.
European stocks fell for a second day as food and basic- resource companies retreated and concern mounted that tomorrow’s U.S. gross domestic product report may show growth slowed in the world’s largest economy.
Nestle, Unilever Slip
Nestle SA and Unilever slid more than 1.5 percent after U.S. rivals Kellogg Co. and Colgate-Palmolive reported revenue that missed estimates. Vallourec SA dropped 3.1 percent after saying a recovery in the steel industry will slow. Telefonica SA, Europe’s second-biggest phone company, and Cap Gemini SA, the region’s largest computer-services company, gained more than 3 percent on increased earnings.
The MSCI Emerging Markets Index climbed for an eighth day, rising 0.3 percent. Russia’s Micex Index increased 1.7 percent as oil producer OAO Rosneft rallied, while Ukraine’s benchmark equities index gained 3.5 percent after the International Monetary Fund approved a $15.2 billion loan to the country.
--With assistance from Stephen Kirkland and Adam Haigh in London. Editors: Michael P. Regan, Stephanie Borise
To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Kelly Bit at kbit@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.
