Stocks and commodities dropped, while Treasuries reversed earlier losses, as growth in U.S. service industries slowed more than forecast and European Central Bank President Mario Draghi said the economic outlook has worsened.
The Standard & Poor’s 500 Index lost 0.8 percent to close at 1,391.57 at 4 p.m. in New York. Oil and coffee tumbled at least 2.5 percent to lead the S&P GSCI Index of commodities lower. The rebound in Treasuries sent 10-year note yields down less than one basis point to 1.92 percent after they rose three points before the services data. The Dollar Index climbed for a fourth straight day, its longest streak of the year.
Stocks and commodities extended losses as the Institute for Supply Management’s non-manufacturing index fell to a four-month low of 53.5, compared with the median economist estimate of 55.3. The economic outlook in the euro area is subject to downside risks as the sovereign-debt crisis damps momentum, Draghi said at a press conference, adding that policy makers didn’t discuss cutting the ECB’s benchmark interest rate below its current record low of 1 percent.
“Macro economic data throughout the world continues to deteriorate, with the U.S. just starting to catch up to the downside, it appears,” said James Dailey, who manages $215 million at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “Industrial commodities have been weak and are starting to really break down and now even oil is seeming vulnerable.”
Bank of America Corp., Hewlett-Packard Co. and Intel Corp. lost at least 2 percent as the Dow Jones Industrial Average fell 61.98 points to 13,206.59, retreating for a second day after reaching an almost four-year high. General Motors Co. fell 2.4 percent after profit tumbled 61 percent. Carlyle Group LP added 0.2 percent in the private-equity firm’s first day of trading as a public company.
Green Mountain Coffee Roasters Inc. (GMCR:US) plummeted 48 percent, the most ever for the stock, after the maker of Keurig coffee machines said profit this year will be less than it previously expected amid the slowest sales growth in five years.
Viacom Inc. (VIAB:US) rallied 3.4 percent after reporting earnings that beat estimates on higher fees from pay-TV systems. Earnings-per-share have topped estimates at about three quarters of the companies in the index that reported results since April 10, according to data compiled by Bloomberg.
The report on service industries overshadowed a drop in U.S. jobless claims to 365,000 last week, below the 379,000 median forecast of economists in a survey. The Labor Department’s monthly employment report tomorrow is forecast to show employers added 160,000 positions last month and the jobless rate remained at a three-year low of 8.2 percent, while above its average of 5.6 percent since 1948.
U.S. economic data has been trailing economists’ estimates by the most in seven months, according to the Citigroup Economic Surprise Index. The gauge, which tracks reports over the past three months versus the median forecasts of economists in Bloomberg surveys, fell 19 percent to minus 24.2 today, the lowest since Sept. 30. The index is down from its high for the year in January of 91.90.
The recent data has caused some investors to question whether the U.S. market will follow a similar path to last year, when the S&P 500 tumbled 19 percent from its high for the year in April through its low in October. The Citigroup surprise index tumbled from a 2011 high of 97.5 in March to its low of minus 117.2 in June.
“The recent spate of weak data has probably made people wonder if we’ll have a third year in a row where the economy sputters during the summer months,” Wells Fargo Advantage Funds analysts including chief portfolio strategist Brian Jacobsen wrote in a report. “We think that there is a risk, but it is more likely than not that the economy will continue to plow forward, just at a slow pace.”
David Bianco, in his first report after joining Deutsche Bank AG as chief U.S. equity strategist, called for the S&P 500 to rally to 1,475 through the end of the year amid U.S. growth and declining risk from the European crisis. His forecast is higher than the average of 12 strategists tracked by Bloomberg, who project the index will end the year at 1,391. The gauge is up 11 percent so far in 2012.
“Attractive upside remains for full-year 2012 and in the long term provided a few smart decisions are made by government and corporate leaders,” New York-based Bianco wrote in a note dated today. “The crisis is fading and a return to decent growth and lower risk premiums is a choice.”
The dollar strengthened versus 15 of 16 major peers, gaining the most against the New Zealand, Australian and Mexican currencies. New Zealand’s dollar, known as the kiwi, slid 1.4 percent after the nation’s unemployment rate rose to 6.7 percent in the first quarter, exceeding the 6.3 percent median forecast in a survey.
Crude oil lost 2.5 percent to $102.54 a barrel in New York, while coffee sank 3.8 percent and zinc and lead fell at least 1.8 percent. Among the 24 commodities tracked by the S&P GSCI, 15 retreated. Natural gas rose 4.1 percent, rebounding from yesterday’s 5 percent slide, to lead gains after a government report showed supplied increased by less than the seasonal average last week.
The Stoxx Europe 600 Index ended little changed after rallying as much as 1 percent before Draghi’s remarks.
France’s 10-year bonds gained after borrowing costs fell at an auction of 7.43 billion euros ($9.78 billion) of debt, the last sale of securities before the nation chooses its next president. Spain’s five-year notes climbed after it auctioned 2.52 billion euros of securities, exceeding the maximum target, and stayed higher after the nation’s credit rating was lowered by DBRS.
Ten-year French yields decreased six basis points to 2.91 percent, while rates on five-year Spanish debt lost eight basis points to 4.69 percent.
The MSCI Emerging Markets Index declined 0.5 percent. The Hang Seng China Enterprises Index slipped 1.4 percent after Temasek Holdings Pte., Singapore’s state-owned investment company, sold shares in Bank of China Ltd. and China Construction Bank Corp.
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