Bloomberg News

U.S. Stocks Retreat as Treasuries Gain Before August Jobs Report

September 01, 2011

Sept. 1 (Bloomberg) -- U.S. stocks slid, halting a four-day rally, Treasuries advanced and commodities declined as investors turned their attention to tomorrow’s report on American jobs to gauge the outlook for the economy.

The Standard & Poor’s 500 Index lost 1.2 percent to 1,204.42 at 4 p.m. after surging 5.1 percent in the previous four sessions. The gain in Treasuries drove 10-year yields down nine basis points to 2.13 percent. The Dollar Index climbed for a third straight day, its longest rally since June, while wheat, corn and zinc led losses in raw materials.

A Labor Department report tomorrow may show payrolls climbed by 68,000 in August following a 117,000 increase in July, according to the median forecast of economists surveyed by Bloomberg News. Goldman Sachs Group Inc.’s Jan Hatzius and Societe Generale SA’s Brian Jones lowered their jobs forecasts today. Concern about the employment data overshadowed an Institute for Supply Management report that showed growth in U.S. manufacturing, defying economist forecasts for the first contraction in two years.

“The data was pretty good, but to some degree that’s backward-looking,” said James Caron, head of U.S. interest-rate strategy at Morgan Stanley in New York, one of 20 primary dealers that trade with the Fed. “I don’t think there are a lot of people who are tremendously encouraged in general for the outlook of the overall economy.”

Banks, Industrials

Gauges of financial and industrial companies led losses among all 10 of the main industry groups in the S&P 500, falling at least 1.5 percent. JPMorgan Chase & Co., Bank of America Corp., Caterpillar Inc. and Alcoa Inc. led declines in the Dow Jones Industrial Average, which turned lower for the year after yesterday erasing its 2011 loss.

Goldman Sachs Group Inc. slid 3.5 percent as the Federal Reserve Board announced an enforcement action against the bank for a “pattern of misconduct and negligence” related to residential mortgage servicing and foreclosure processing at its former subsidiary Litton Loan Servicing LP. Goldman Sachs agreed to pay penalties and write down $53 million of mortgage loans in New York to gain approval for its sale of Litton Loan.

The S&P 500 plunged 18 percent from an almost three-year high on April 29 through Aug. 8 as concern grew that the world’s largest economy may relapse into a recession and Europe will fail to contain its debt crisis. The retreat was led by companies most-sensitive to the economy, including financial firms, industrial manufacturers and commodity producers. The index rebounded 8.9 percent from Aug. 8 through yesterday after its valuation slid to 12.2 times reported earnings of its companies, the cheapest since the bull market began in 2009.

Bond Yields

Thirty-year Treasury yields sank 11 basis points to 3.50 percent. U.S. debt yields fluctuated between gains and losses earlier after the ISM factory index fell less than forecast in August to 50.6, U.S. initial jobless claims decreased by 12,000 to 409,000 last week and European manufacturing shrank more than initially estimated in August.

Ten-year yields declined 57 basis points last month, the most since a 71 basis-point drop in December 2008. The yield slid to a record low of 1.97 percent on Aug. 18. Treasuries handed investors a return of 2.8 percent in August, the best month since December 2008, according to indexes compiled by Bank of America Merrill Lynch.

The growth in manufacturing tempered concern about the economic slowdown and dimmed prospects for more monetary stimulus in the form of bond purchases by the Federal Reserve. The ISM report contrasted with Fed data in August showing manufacturing slowed in the New York, Philadelphia and Richmond, Virginia, regions. Minutes from the Fed’s Aug. 9 meeting released this week showed some policy makers urged action to stimulate a sluggish economy, leading to speculation the central bank may consider additional measures to boost the economy.

‘Very Important’

“If we’re not going to get a lot of extra bad information between August and September, then the Fed is probably not going to do more in September,” said Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc. “That’s why this is potentially very important.”

The dollar advanced versus 10 of 16 major peers, appreciating 1.6 percent versus the Brazilian real and 0.7 percent against the euro. Wheat, corn and zinc declined more than 2.3 percent to lead losses in 21 of 24 commodities tracked by the S&P GSCI Index.

The Stoxx Europe 600 Index advanced 0.6 percent after tumbling 11 percent in August, its largest monthly retreat since October 2008. Royal Bank of Scotland Plc soared 8.2 percent following a report that U.K. lawmakers may delay a regulatory overhaul of lenders. Nokia Oyj gained 5.2 percent as Mosaid Technologies Inc. bought a portfolio of patents from the biggest mobile phone maker by volume.

--With assistance from Catarina Saraiva in New York. Editors: Nick Baker, Michael P. Regan

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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