Bloomberg News

U.S. Stocks Retreat, Treasuries Climb on Ukraine, China

March 13, 2014

U.S. Stocks Fall After S&P 500 Nears Record on Economic Reports

Specialist Patrick King, right, works with traders on the floor of the New York Stock Exchange on March 13, 2014. Photographer: Richard Drew/AP Photo

The Standard & Poor’s 500 Index fell, erasing its gain for the year, while Treasuries and the yen advanced as tension persisted in Ukraine. Copper declined as data from China missed estimates and gold reversed losses.

The S&P 500 sank 1.2 percent to 1,846.34 after earlier rising to within four points of a record. The Dow Jones Industrial Average fell 231 points. Yields on 10-year Treasuries slid nine basis points to 2.64 percent by 5:11 p.m. in New York. Russian stocks dropped to the lowest level since May 2010. Copper dropped to near a 44-month low and gold rose 0.1 percent. The yen rallied 0.9 percent to 101.78 per dollar.

“Ongoing concerns about China’s growth and the fluid situation in Ukraine continue to linger on markets,” said Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc. “As Kerry meets with his Russian counterpart tomorrow in a last ditch effort to divert the referendum, markets could be a little jittery.”

Secretary of State John Kerry warned the U.S. and Europe could take “very serious” steps should there be no sign of resolution between Ukraine and Russia as the Crimea region prepares to vote this weekend on a separatist resolution. China’s industrial output, investment and retail-sales growth slowed more than analysts estimated in January and February.

The global concerns overshadowed U.S. data indicating an improving American economy. Retail sales rose in February for the first time in three months, and jobless claims unexpectedly fell last week to the lowest level since November, data showed.

Equity Valuations

The S&P 500 closed yesterday 0.5 percent away from a record reached March 7. The gauge has fallen 1.7 percent this week and is trading at the lowest level since March 3. It is down 0.1 percent in 2014 after rallying 30 percent last year.

U.S. stocks are falling at the five-year anniversary of a bull market that sent the S&P 500 up 176 percent through yesterday, pushing its price-to-earnings ratio to 17, approaching the level where equities peaked in 2008.

The advance is about a week away from supplanting the stretch of equity gains that lasted from 1982 to 1987 to become the fifth longest of all time, according to Bespoke Investment Group LLC.

It’s also three weeks before the end of the first quarter, a period for which Wall Street analysts have lowered forecasts for U.S. earnings growth to 1.9 percent from 6.6 percent at the start of 2014, according to data compiled by Bloomberg. For all of 2014, analysts see profits climbing 7.6 percent, compared with an estimate of 9.7 percent at the end of December.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index (VIX), a gauge for U.S. stock volatility, rose 12 percent to 16.22 today. The measure has advanced 18 percent this year.

“The U.S. data was quite good, but the market doesn’t want to acknowledge that today,” Lillian Seidman, an options strategist at Miller Tabak & Co. in New York, said in an interview. “There’s China concern and Ukraine is not helping. Overall there are many factors to force out sellers right now.”

Russia’s Micex Index slid 2 percent to the lowest level since May 25, 2010. President Vladimir Putin isn’t backing down over Crimea amid the threat of further sanctions from western nations opposed to Russia’s occupation of the Black Sea region.

Kerry told a Senate panel in Washington today that “nobody doubts” Crimea will vote to leave Ukraine. He spoke to Russian Foreign Minister Sergei Lavrov by phone today and will meet him face-to-face in London tomorrow. German Chancellor Angela Merkel said Russia is risking “massive” political and economic damage.

Emerging Markets

Goldman Sachs Group Inc. cut its forecast for Russia’s economic growth this year to 1 percent from 3 percent earlier, citing the Ukraine crisis, lower investment and capital outflows.

The iShares MSCI Emerging Markets Index exchange-traded fund lost 1.8 percent to the lowest level since Feb. 5.

Brazil’s Ibovespa index fell 0.9 percent, extending a decline from its Oct. 22 peak to 19.5 percent on concern that Brazil’s credit rating will be reduced. Central bank President Alexandre Tombini and directors meet today with S&P analysts.

The S&P GSCI index of 24 commodities lost 0.3 percent, with natural gas declining 2.4 percent to pace losses. Wheat futures fell from a four-month high on signs that demand ebbed for exports from the U.S., the world’s biggest shipper.

Copper fell for the third time this week on growing signs of slower demand by the world’s top user. Copper for delivery in May slid 1.3 percent to $2.923 a pound in New York. Prices touched the lowest levels since 2010 yesterday.

China accounts for as much as 45 percent of global copper demand, according to Barclays Plc.

U.S. Movers

In the U.S., nine of the 10 main S&P 500 groups retreated today. Technology and industrial stocks led declines, falling at least 1.5 percent. United Technologies Corp. slid 2.5 percent and Pfizer Inc. lost 2.7 percent for the steepest declines in the Dow.

“The negative data points coming from China have taken people’s bullishness down a few levels,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. “You’re seeing traders who were probably overextended on the long side toward the end of last week continue to reduce positions.”

Americans ventured out to shop last month even as colder-than-normal temperatures and severe snowstorms blanketed parts of the U.S., showing the economic expansion is regaining momentum. The economic reports added to speculation the Federal Reserve will cut back on its bond purchases at its meeting next week. The Fed is trying to determine how much recent economic data has been affected by weather.

‘Lingering Question’

“The lingering question has been how disruptive this deep freeze has been to the economy,” James Dunigan, who helps oversee $127 billion as chief investment officer in Philadelphia at PNC Wealth Management, said by phone. “As we come out of this deep thaw, if we get some better, more clear data on the underlying trend, we’re going to see that the economy is continuing to gain momentum.”

Treasury yields rose to as high as 2.75 percent after the U.S. data was released, before reversing. Economists and strategists in a Bloomberg survey cut their forecasts for the 10-year yield at year-end. The yield will rise to 3.35 percent in the fourth quarter, according to survey dated March 7 to 12.

The euro fell 0.3 percent to $1.3867, reversing earlier gains, as the European Central Bank signaled it’s monitoring advances in the currency for deflation risks. ECB President Mario Draghi said its level is “increasingly relevant in our assessment of price stability.” It earlier approached $1.40, the highest in more than two years.

The Stoxx Europe 600 Index extended a one-month low after falling 1 percent. Retailers lost the most among 19 industry groups. Wm Morrison Supermarkets Plc (MRW) plunged the most in 11 years after the smallest of the U.K.’s four main grocers forecast a profit decline and said it will sell property.

Adecco SA (ADEN) sank 6.6 percent after its largest investor said it will sell about 16 percent in the world’s biggest provider of temporary workers.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeremy Herron, Emma O’Brien


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