BackUS stocks decline for second day amid selloff in global bonds
The yield on 10-year notes earlier reached a five-month high before falling
Premium
London/New York: US stocks declined, amid a second day of losses for the Standard & Poor’s 500 Index, as equities followed a global bond selloff.
Intel Corp. lost 1.4% as semiconductors led technology shares lower. Morgan Stanley and American Express Co. declined more than 0.7% as financial companies fell. Chesapeake Energy Corp. and Cameron International Corp. paced an advance in energy amid oil’s rebound. Verizon Communications Inc. slipped 0.7% after agreeing to buy AOL Inc. in a deal valued at $4.4 billion. AOL jumped 18%.
The S&P 500 fell 0.3% to 2098.20 at 11:38 am in New York. The gauge pared an earlier 0.9% drop as Treasuries erased losses. The Dow Jones Industrial Average decreased 40.84 points, or 0.2%, to 18,064.33. The Nasdaq Composite Index dropped 0.4% after earlier losing more than 1%. The yield on 10-year notes earlier reached a five-month high before falling.
“When you have stocks at the high end of the historical range you need better news than what we have," said Matt Maley, an equity strategist at Miller Tabak & Co. in Newton, Massachusetts. “This rise in rates isn’t coming from a better economy or a fundamental reason. European bonds popped back up, bonds here followed and now stocks are moving lower. It’s a lack of positive news than it is a plethora of negative news."
Global rout
A global fixed-income rout is spreading to other markets as the European Central Bank’s quantitative easing helps push global debt valuations to extreme levels while traders grow more confident that the Federal Reserve will delay raising interest rates until later this year to allow for the economic recovery to gain momentum.
Although the timing is uncertain, the Fed’s first rate increase since 2006 will usher in a “regime shift" that will stir financial markets when it occurs, said New York Fed President William C. Dudley on Tuesday. San Francisco Fed President John Williams, who votes on policy this year, speaks at the New York Association for Business Economics from 12:45 pm in New York.
Concern the Fed would raise borrowing costs even with economic data missing projections, along with estimates for a slump in corporate profits, have whipsawed stocks between gains and losses in the past five weeks. Equities posted their biggest rally since March on Friday, after a report showed hiring bounced back in April from a winter slowdown.
Data for April are due later this week on retail sales and industrial production. A Friday report may show consumer sentiment remained near its highest level since 2007 this month.
Temporary weakness
“Equities have actually managed to hold on despite a series of disappointing macro data and rising bond yields," SEB AB’s Thomas Thygesen head of cross-asset strategy, said by phone from Copenhagen. “We’re all betting that US growth will pick up again, and the risk is that it doesn’t. Stocks will feel more comfortable about higher bonds yields if we get a confirmation that the winter weakness was just temporary."
Companies are beating earnings estimates and analysts have reversed their predictions for a decline. S&P 500 members are now on track to deliver income growth of 0.2% in the first quarter, compared with projections for a 5.8% decline as recently as March. Analysts still predict declines in the following two quarters.
The Chicago Board Options Exchange Volatility Index rose 2.8% to 14.24, after earlier rising 9.2%. The gauge, known as the VIX, ended Friday with its second straight weekly gain for the first time since 13 March. Bloomberg
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
