Bloomberg News

U.S. Stocks Fall With Gold, Treasuries on Fed Policy Statement

October 30, 2013

Tokyo Stock Exchange

An employee works on the trading floor of the Tokyo Stock Exchange (TSE) in Tokyo. Japan’s Topix Index jumped 0.9 percent, adding to a monthly advance of the same magnitude. Photographer: Kiyoshi Ota/Bloomberg

The Standard & Poor’s 500 Index (SPX) fell for the first time in five days and gold and Treasuries dropped, while the dollar reversed earlier declines, as the Federal Reserve fueled speculation it will begin to slow the pace of stimulus in coming months.

The S&P 500 slipped 0.5 percent to 1,763.31 at 4 p.m. after rising to a record yesterday for a third straight day. The 10-year Treasury yield increased 2.7 basis points to 2.53 percent after earlier dropping as much as three basis points. Gold futures fell 0.2 percent after climbing more than 1 percent earlier. The Bloomberg U.S. Dollar Index, a gauge of the currency against 10 major peers, reversed a 0.3 percent drop to rise 0.1 percent. West Texas Intermediate oil lost 1.5 percent, sending its discount to Brent to the most since April.

The Fed decided to press on with $85 billion in monthly bond purchases, saying it needs to see more evidence that the economy will continue to improve even amid signs of “underlying strength.” The Fed was expected to maintain the pace of asset purchases before beginning to reduce them at its March meeting, according to a Bloomberg survey of analysts in advance of today’s statement.

“When you look at the reaction in the market, investors are really taking the opinion that the taper may actually come sooner than previously thought,” Chris Gaffney, senior market strategist at EverBank Wealth Management, said by phone from St. Louis. “The statement is pretty strong in its view that the Fed sees the economy continuing to improve. They did not mention the government shutdown. All indications are that the economy is going to continue to improve.”

‘Underlying Strength’

Fed Chairman Ben S. Bernanke is pushing unprecedented accommodation into the final months of his Fed chairmanship as he seeks to shield the four-year economic expansion from the impact of higher borrowing costs and this month’s partial U.S. government shutdown. The 16-day closing resulted in the furloughs of as many as 800,000 federal workers and delayed release of data the Fed says it needs to evaluate the economy.

“Taking into account the extent of federal fiscal retrenchment over the past year, the committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy,” the Fed’s policy committee said.

It’s “imperative” that the Fed begin to taper its record stimulus because it is inflating asset prices too much, BlackRock Inc. Chief Executive Officer Laurence D. Fink, whose company is the world’s largest money manager with $4.1 trillion in assets, said during a panel discussion in Chicago yesterday.

‘Bubble-Like’

“We’ve seen real bubble-like markets again,” he said. “We’ve had a huge increase in the equity market. We’ve seen corporate-debt spreads narrow dramatically.”

The S&P 500 has rallied 161 percent from its bear-market low in 2009. The extra yield investors demand to hold high-risk, high-yield bonds has dropped to 444 basis points from this year’s high of 534 in June, according to the Bank of America Merrill Lynch U.S. High Yield Index. That spread reached 440 basis points on Oct. 24, the narrowest since May 28.

Consumer-staples, utility and energy companies led losses in all 10 of the main industry groups in the S&P 500 today. Yelp Inc. (YELP:US), owner of a website that lets consumers review local businesses, sank 2.6 percent after reporting a wider-than-estimated loss. General Motors Co. climbed 3.3 percent after third-quarter profit beat estimates as the largest U.S. automaker’s North American earnings helped buffer international losses.

Earnings and Fed stimulus have helped extend the S&P 500’s advance to almost 24 percent in 2013, which would mark its best yearly rally in a decade. Of the 314 companies in the index that have released results so far this quarter, 75 percent beat analysts’ profit projections and 53 exceeded revenue forecasts, according to data compiled by Bloomberg.

Jobs Growth

Companies in the U.S. boosted payrolls by 130,000 in October, following a gain of 166,000 last month, figures from Roseland, New Jersey-based ADP Research Institute showed today. The median forecast of 39 economists surveyed by Bloomberg called for an advance of 150,000.

The Stoxx Europe 600 Index was little changed after earlier reaching the highest level since 2008. Automakers led gains as VW jumped 5 percent. Eni (ENI) SpA, Italy’s biggest oil company, advanced 1.3 percent in Milan after reporting adjusted net income fell less than analysts anticipated.

Barclays Rises

Barclays Plc, the U.K.’s second-largest bank by assets, rose 0.9 percent in London after third-quarter pretax profit matched estimates. The Markit iTraxx Senior Financial Index of credit-default swaps linked to 25 European banks and insurers rose 3 basis point to 121 basis points after yesterday reaching the lowest since Oct. 13, 2010.

This year’s rally in equities has pushed valuations on benchmark indexes in the U.S. and Europe to the highest levels in more than three years. The S&P 500 started today trading for 16.8 times reported earnings, the most since May 2010. The Stoxx 600 was valued at 20.9 times reported earnings and 14.9 times projected profit, the most expensive valuations since the end of 2009, according to data compiled by Bloomberg. The European gauge has rallied 15 percent this year following a similar gain in 2012

Among stocks moving in Asia today, China Citic Bank Corp. advanced 4.9 percent in Hong Kong after reporting higher earnings, and Daiwa Securities Group Inc. (8601), which posted an increase in quarterly profit yesterday, added 3.8 percent in Tokyo.

Emerging Markets

The MSCI Emerging Markets Index rose for a third day, advancing 0.5 percent. The gauge jumped about 5.5 percent in October, poised for its first back-to-back monthly gain since January. India’s S&P BSE Sensex Index closed at a record high as Bharti Airtel jumped 5.5 percent, the most in more than a month. Brazil’s Ibovespa slipped for a second day, losing 0.7 percent.

The Shanghai Composite Index climbed 1.5 percent, rebounding from a seven-week low, on speculation the government will introduce measures to boost economic growth at a Communist Party meeting and as the largest oil companies, PetroChina Co. and China Petroleum & Chemical Corp., reported higher profit.

, Government Bonds

All sovereign debt markets tracked by Bloomberg World Bond Indexes apart from Australia and New Zealand had positive returns in the past month.

Germany’s 10-year yield fell five basis points to 1.69 percent today, dropping for a seventh day in the longest run since August 2011.

The dollar strengthened against 13 of 16 major peers, rising 0.2 percent to $1.3750 per euro as the American currency appreciated versus 13 of 16 major peers.

WTI oil dropped 1.5 percent to a four-month low of $96.77 a barrel after the Energy Information Administration said stockpiles rose 4.09 million barrels to 383.9 million last week. A 2.4 million-barrel gain was projected in a Bloomberg survey. Brent for December settlement settled $13.09 higher than WTI, the most since April 2. Brent increased 85 cents, or 0.8 percent, to end the session at $109.86 a barrel in London.

Copper advanced 1.4 percent to $3.3255 a pound in New York, the biggest gain since Sept. 19, on signs of increasing demand from china, the world’s biggest user of the metal. The S&P GSCI (SPGSCI) gauge of 24 commodities was little changed today and is down 0.7 percent in October, a second monthly decline.

To contact the reporters on this story: Nick Taborek in New York at ntaborek@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net; Aubrey Pringle in New York at apringle1@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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