The Standard & Poor’s 500 Index (SPX) retreated from a record amid concern the Federal Reserve will scale back its stimulus efforts. Gold and silver advanced as Moody’s Investors Service warned the U.S. rating may be cut. The yen rebounded from the weakest level since 2008.
The S&P 500 lost less than 0.1 percent to 1,666.29 as of 4 p.m. in New York after rising as much as 0.3 percent. The Stoxx Europe 600 Index reached an almost five-year high and the U.K.’s FTSE 100 Index closed at the strongest level since 2000. Silver and gold reversed early losses as Moody’s said the U.S. may face a downgrade in 2013 if a federal budget deal isn’t reached. The yen added 0.9 percent to 102.27 per dollar.
Chicago Fed President Charles Evans said today the U.S. economy is “improving quite a lot” and growth should be self-sustaining in 2014. His remarks in a speech in Chicago triggered speculation that the Fed will consider tapering its $85 billion in monthly purchases of mortgage and Treasury securities.
“Keep in mind we are at all-time highs so even a moderate cautious comment will be met with some selling,” Larry Peruzzi, senior equity trader at Cabrera Capital Markets LLC in Boston, wrote in an e-mail. “The markets have priced in employment gains now and not in the future,” he said. “Investors are looking for a reason to take profits.”
Global stocks have rallied in the past four weeks, boosting market capitalization by $2.3 trillion and pushing the MSCI All-Country World Index to the highest level since 2008.
The S&P 500 reached records in 10 of the previous 12 sessions, extending its 2013 rally to 17 percent. The index has jumped more than 146 percent from its bear-market low in 2009 amid the Fed’s bond purchases and earnings growth.
Investors will watch for clues to when the central bank may begin tapering its asset purchases when Fed Chairman Ben S. Bernanke testifies to a congressional committee on May 22, the same day minutes from the Fed’s last meeting are released.
“The fundamentals are good enough that the market is going to continue to go higher over the balance of the year,” Margie Patel, a senior fund manager at Wells Capital Management in Boston who oversees about $1.5 billion, said in a telephone interview. “Even talks about tapering last week didn’t cause any wobble in the marketplace. That tells me that if we do see a push-up in rates over the course of this year, when the Fed reduces their purchases, it’s not going to have a material effect.”
Among U.S. stocks moving today, Cisco Systems Inc., Merck & Co. and Coca-Cola Co. lost at least 1.2 percent to lead the Dow Jones Industrial Average down 19.12 points to 15,335.28.
Yahoo! Inc. (YHOO:US) rose 0.2 percent after agreeing to buy blogging network Tumblr Inc. for about $1.1 billion. Actavis Inc. rallied 1.3 percent as it reached a deal to acquire Warner Chilcott Plc, sending the target’s shares up 2 percent. Websense Inc. jumped 29, the most since 2003, to an almost two-year high after agreeing to be bought by private-equity firm Vista Equity Partners. Red Hat Inc. slipped 4.3 percent following an analyst downgrade.
The most-indebted U.S. companies are gaining more than any time in almost four years compared with the rest of the stock market amid the broadest rally since at least 1995.
Fed interest rates near zero and the expanding economy are allowing S&P 500 companies with the lowest working capital, smallest earnings and highest debt ratios to reduce borrowing costs and avoid default. The stocks surged 27 percent this year, almost double the gains for businesses with the most cash and least borrowing, according to data compiled by Bloomberg and Goldman Sachs Group Inc.
U.S. Treasuries were little changed, with the yield on the 10-year note up one basis point at 1.96 percent. U.S. policy makers must address debt loads projected to rise later this decade to avoid a 2013 downgrade, even as the latest budget projections are “credit positive,” according to Moody’s.
The U.S. budget deficit will drop to $378 billion in 2015 from a record $1.4 trillion in 2009, according Congressional Budget Office data. The federal government will post a $642 billion deficit this year, the first time in five years that the shortfall has been less than $1 trillion. Moody’s said Sept. 11 that the U.S.’s top Aaa rating would likely be cut to Aa1 if an agreement on the debt ratio isn’t reached.
“The fact that it showed much lower debt levels going forward, we view as a positive development,” Steven Hess, senior vice-president at Moody’s and based in New York, said today in a telephone interview of the CBO forecast. “More needs to be done on the policy front to address this rising debt ratio.”
The Stoxx 600 closed at the highest level since June 2008 as automobile and media companies led gains. Ryanair Holdings Plc, Europe’s biggest discount airline, jumped 6.9 percent as annual profit excluding one-time items climbed 13 percent to 569 million euros ($731 million), surpassing analyst estimates. EasyJet Plc, Ryanair’s smaller rival, advanced 4 percent.
FirstGroup Plc plunged a record 30 percent after the U.K. rail operator said it will raise about 615 million pounds ($935 million) in a rights offer to cut debt. The company said it won’t pay a final dividend and Martin Gilbert will stand down as chairman.
Italy’s 10-year bonds yielded 252 basis points more than German bunds after the spread reached as little as 250 basis points, the narrowest gap since Jan. 30. Germany’s 10-year bond yield climbed five basis points to 1.38 percent. Spanish 10-year bond yields were little changed at 4.20 percent. Markets in Switzerland, Austria, Denmark, Norway, Iceland and Luxembourg were closed for the Whit Monday holiday.
Silver for July delivery added 1 percent to close at $22.582 an ounce in New York after falling as much as 9.4 percent to $20.25, the least since September 2010. Gold futures rose 1.4 percent to settle at $1,384.10 an ounce, halting a seven-day slump and reversing an earlier loss of more than 2 percent.
“The Moody’s headline seems to have brought buyers to precious metals,” Dave Lutz, the head of exchange-traded fund trading and strategy at Stifel Nicolaus & Co. in Baltimore, said in a telephone interview. “There was also massive short-covering after prices started rising” as traders unwound bets on a slump, he said.
Hedge-fund managers are making the biggest ever bet against gold as billionaire George Soros sold holdings last quarter and Goldman Sachs Group Inc. predicted more declines after the longest slump in four years.
The funds and other large speculators held 74,432 so-called short contracts on May 14, U.S. Commodity Futures Trading Commission data show. That’s the highest since the data begins in June 2006 and compares with 67,374 a week earlier. The net-long position dropped 20 percent to 39,216 futures and options, the lowest since July 2007. Net-bullish wagers across 18 U.S.- traded raw materials rose 1.1 percent to 588,482, led by gains in hogs, corn and cotton.
Natural gas climbed 0.9 percent to $4.09 per million British thermal units, the highest in almost three weeks, on forecasts for above-normal temperatures that would boost demand from power plants. The fuel also climbed after the U.S. last week conditionally approved liquefied natural gas exports to countries that don’t have free-trade agreements with the U.S. from the Freeport project in Texas.
The MSCI Emerging Markets Index added 0.2 percent and has risen 5 percent from a five-month low on April 18. A report on May 18 showed new home prices climbed in 68 out of 70 Chinese cities tracked by the government. China Resources Land Ltd. (1109) and Guangzhou R&F Properties Co. (2777) rallied in Hong Kong. China’s new home prices rose in 68 of 70 cities in April with Beijing, Shanghai and Guangzhou showing the biggest yearly gains.
The yen strengthened against all but two of its 16 major peers, climbing most versus South Africa’s rand with a gain of more than 1 percent. It added 0.6 percent to 131.77 per euro. Europe’s 17-nation shared currency rose 0.5 percent to $1.2887, snapping a seven-day drop. Japan’s Cabinet Office said the domestic economy was picking up slowly and raised its assessment of Europe for the first time since September 2010 after Economy Minister Akira Amari said further yen weakness may hurt people’s lives.
“It’s being said excessive yen gains have been corrected a lot,” Amari said yesterday on public broadcaster NHK. “If the yen extends losses a lot, people’s lives will be negatively affected. It’s our job to minimize that.”
South Africa’s rand depreciated 0.3 percent against the dollar, weakening for an eighth straight day, amid speculation slowing inflation will give the nation’s Reserve Bank room to lower borrowing costs, reducing the currency’s yield advantage. New Zealand’s dollar climbed 1.4 percent to 81.74 U.S. cents after the nation’s finance minister said home price gains will pressure the central bank to raise interest rates.
The British pound strengthened 0.6 percent to $1.5259. U.K. home sellers raised asking prices by 2.1 percent in May, property-website operator Rightmove said today. That’s the fifth month of gains and giving the market its best start to a year since 2004.
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