Bloomberg News

U.S. Stock Futures Sink, Treasuries Rally as GDP Trails Estimate

July 29, 2011

July 29 (Bloomberg) -- U.S. stock-index futures extended losses and Treasuries rallied after gross domestic product grew less than estimated in the second quarter, adding to concern the economic rebound is slowing as the federal government inches closer to default. Gold gained.

Futures on the Standard & Poor’s 500 Index expiring in September tumbled 0.9 percent to 1,285.2 at 8:45 a.m. in New York. Dow Jones Industrial Average futures sank 120 points, or 1 percent, to 12,073. Ten-year Treasury yields slid seven basis points to 2.88 percent, while gold futures climbed 0.5 percent to $1,625.00 an ounce.

"It’s coming from all sides today," Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in telephone interview. “The economy is not moving along at a robust pace, the consumer is not spending and overshadowing all of this is the uncertainty in Washington,” he said. "We need more confidence for people to buy risky assets such as stocks."

Gross domestic product rose at a 1.3 percent annual rate in the second quarter following a 0.4 percent gain in the prior quarter that was less than previously estimated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase. Household purchases, about 70 percent of the economy, climbed 0.1 percent.

Weekly Slide

The S&P 500 has tumbled 3.3 percent this week, the largest weekly retreat in almost a year, as concern mounted that lawmakers will fail to agree to increase the U.S. debt ceiling by the Treasury Department’s Aug. 2 deadline. House Speaker John Boehner fell short of the votes within his own party needed to increase the borrowing limit after a night of one-on-one appeals to members. President Barack Obama had threatened to veto the House’s plan.

Senate Democrats plan to break the impasse by devising a strict enforcement mechanism to guarantee future deficit savings, according to Democratic officials. The talks center on setting up automatic spending cuts or tax increases, or some combination of the two, if the government fails to stay within the debt limit.

The standoff in Washington has overshadowed the second- quarter earnings season. Per-share profit has topped analysts’ estimates at about 77 percent of the 299 companies in the S&P 500 that have released results since July 11, data compiled by Bloomberg show. Net income has grown 17 percent and sales have increased 13 percent for the group, the data show.

The S&P 500 is headed for a decline of 1.5 percent in July, its third straight month of losses.

--Editor:

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net


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