Stocks slipped before the start of earnings season, pulling the Standard & Poor’s 500 Index down from a five-year high, and the Dollar Index fell for the first time in four days. European banks rose as regulators eased liquidity rules while Italian bonds slid.
The S&P 500 dropped 0.3 percent to 1,461.89 at 4 p.m. in New York and the Stoxx Europe 600 Index (SXXP), which last week reached its highest level since February 2011, closed 0.4 percent lower. BNP Paribas SA and Barclays Plc paced bank gains in Europe. The yen advanced against 14 of 16 major peers, adding 0.4 percent versus the U.S. currency, while the Dollar Index retreated 0.3 percent from the highest level since November. Treasuries were little changed while commodities rose.
Alcoa Inc. (AA:US) will unofficially start the U.S. earnings reporting season after the market closes tomorrow, with analysts predicting 2.9 percent growth in quarterly profit for S&P 500 companies. European Central Bank President Mario Draghi’s Governing Council will meet Jan. 10 to focus on nursing the euro region back to economic health.
“We’ve come a long way in a very short time,” Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York, said in a phone interview. “I’m expecting better-than-anticipated earnings. Yet we need to see some consolidation first.”
Gauges of utilities, energy and consumer-staples companies lost at least 0.7 percent to lead declines in eight of the 10 main industry groups in the S&P 500 today. Illumina Inc. tumbled 7.1 percent after Roche Holding AG Chairman Franz Humer told a Swiss newspaper that a deal to buy the U.S. genetics company is off the table. Applied Materials Inc., the world’s largest producer of chipmaking equipment, retreated 7.1 percent after JPMorgan Chase & Co. cut its rating on the shares.
Boeing Co. tumbled 2 percent after a 787 Dreamliner operated by Japan Airlines Co. caught fire on the ground this morning at Boston’s Logan International Airport.
Bank of America Corp., the second-biggest U.S. bank by assets, was little changed after agreeing to pay Fannie Mae $3.6 billion to resolve home-loan repurchase claims. The lender will also pay $6.75 billion to repurchase residential mortgages sold to Fannie Mae. The deal will “substantially resolve outstanding claims for compensatory fees” between the two companies, according to the statement.
The KBW Bank Index (BKX) slipped 0.3 percent. Ten of the largest U.S. mortgage servicers will pay a combined $8.5 billion under an agreement that will end case-by-case reviews of foreclosure- abuse claims stemming from a 2011 deal with regulators. Companies including JPMorgan Chase & Co., Bank of America and Citigroup Inc. must provide $5.2 billion in mortgage assistance and $3.3 billion in direct payments to wronged borrowers, the Office of the Comptroller of the Currency and the Federal Reserve said in a statement today.
Fourth-quarter earnings at banks and diversified financial companies in the S&P 500 are forecast by analysts to have grown 28 percent and 71 percent, respectively, as the Federal Reserve’s bond-buying programs pushed mortgage rates to record lows and fueled demand for loans and refinancing. Earnings at insurance companies fared the worst among 24 groups, decreasing 48 percent amid claims from Superstorm Sandy, according to analyst estimates compiled by Bloomberg.
Stocks surged last week, sending the S&P 500 up 4.6 percent for its biggest gain in 13 months, after President Barack Obama and U.S. lawmakers reached a compromise that averted the package of spending cuts and tax increases known as the fiscal cliff.
The S&P 500 is poised to retreat further from a five-year high as earnings disappoint investors, according to Jonathan Golub at UBS AG. The 2.9 percent growth in profits forecast by analysts would be the second-slowest quarterly growth since 2009, the data show.
“All we’ve done is to put off the very hard decisions around the fiscal cliff,” Golub, chief U.S. market strategist at UBS, said in a Bloomberg Radio interview with Tom Keene and Ken Prewitt. “What we’re going to see in the earnings season is that we may not be falling apart, but this underlying trend of earnings growth really is going to be weak and disappointing.”
The cost of U.S. stock options fell for a fifth day after retreating the most ever last week amid the budget resolution and better-than-estimated jobs growth. The Chicago Board Options Exchange Volatility Index, known as the VIX, plunged 39 percent to 13.83 last week, the biggest drop since the gauge was created in 1990. The VIX slipped 0.3 percent today to 13.79, the lowest since August.
Fed Vice Chairman Janet Yellen said on Jan. 5 that communication of policy aims plays a “big role” in supporting the economy now that the central bank’s benchmark interest rate is close to zero. Fed Bank of Philadelphia President Charles Plosser said the same day that the central bank should take the steps necessary to ensure inflation stays near its goal of 2 percent.
Almost two shares fell for each that gained in the Stoxx 600 today as energy and utility companies contributed the most to the decline in the index. A gauge of banks advanced 1.8 percent, trading at a 17-month high, as BNP Paribas climbed 1.9 percent and Barclays increased 3.8 percent.
Central bankers meeting yesterday in Basel, Switzerland, allowed lenders to use a wider range of assets to meet the so- called liquidity coverage ratio amid warnings the proposal would strangle lending and stifle the economic recovery.
The cost of insuring against default on bank debt fell, with the Markit iTraxx Financial index of credit-default swaps dropping four basis points to 121.
Japan’s currency strengthened 0.4 percent to 87.79 yen per dollar after touching 88.41 on Jan. 4, the weakest level since July 2010. The yen’s relative strength index versus the dollar slid to 15.5 on Jan. 4, the least since December 2001 and below the 30 level that traders view as a signal that an asset’s price has fallen too fast. The yen added 0.1 percent against the euro. Europe’s 17-nation currency increased 0.3 percent to $1.3114.
Italy’s 10-year bond yield rose eight basis points to 4.35 percent and the rate on similar-maturity Spanish debt climbed six basis points to 5.11 percent. Spain plans to sell bonds on Jan. 10 and Italy will auction securities the following day.
Silvio Berlusconi’s People of Liberty party reached an agreement with the Northern League to run together in Italy’s February elections, the former prime minister said today on RTL radio. The Northern League, which served in all three of Berlusconi’s governments, opposed his candidacy for premier.
Benchmark U.S. 10-year Treasury yields were little changed at 1.90 percent.
Economists cut their forecasts for Treasury yields in 2013 to the least since Bloomberg began compiling the predictions as jobs data tempered speculation the Federal Reserve will stop buying bonds this year. Ten-year yields will be 2.14 percent by Dec. 31, according to a survey of banks and securities companies as of Jan. 4, with the most recent projections given the heaviest weightings.
“With the economy starting to pick up a bit of momentum this year, and with worries about maybe a downgrade later in the next few months, it could point Treasury yields higher,” Kevin Cummins, an economist at UBS AG, told Bloomberg Television. “We have the 10-year finishing the year at about 2.4 percent by year end. So we do think that rates are going higher.”
The MSCI Emerging Markets Index (MXEF) fell 0.2 percent after capping a seventh straight week of gains, the longest stretch since October 2010. Brazil’s Bovespa sank 0.9 percent and India’s Sensex lost 0.5 percent. China’s CSI 300 Index (SHSZ300) advanced 0.5 percent, entering a bull market after rallying more than 20 percent from 2012’s low.
The S&P GSCI Index of 24 commodities added 0.3 percent as coffee, cocoa, soybeans and gas oil rallied at least 1 percent, while lead, natural gas, nickel and zinc dropped at least 0.6 percent for the biggest declines. Oil rose 10 cents to $93.19 a barrel after gaining 2.5 percent last week. Copper declined for a third day.
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