The MSCI All-Country World Index lost 1 percent at 4 p.m. in New York and the Standard & Poor’s 500 Index slipped 0.5 percent, while rallies in Procter & Gamble Co. and Merck & Co. limited the Dow Jones Industrial Average’s drop. German two-year note yields fell to minus 0.042 percent and 10-year U.S. yields were within four basis points of the lowest ever. The yen rose against all 16 major peers and the dollar gained versus 13. Corn and wheat led commodities up as a drought threatens U.S. crops. Oil erased losses as the U.S. added sanctions against Iran.
Bank of America Corp. strategists reduced earnings estimates for S&P 500 companies for this year and next, citing Europe’s debt crisis and slowing economic growth in China. Investors are bracing for what’s projected to be the first drop in U.S. corporate profits in almost three years, while China’s growth is forecast to fall below 8 percent for the first time since 2009, according to the median estimate of economists in a survey.
“There’s a worldwide slowdown,” Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, said in a phone interview. The firm oversees $40 billion. “Wall Street analysts have been reducing their second- quarter earnings estimates as companies have guided them lower. Profit growth, which has been a main driver for the market, will be less supportive going forward.”
Losses Pared
The S&P 500 pared losses today after dropping as much as 1.2 percent to 1,325.41, dipping below its average price from the past 50 days for a third straight day. The index closed at 1,334.76, compared with its 50-day moving average of 1,334.546, according to Bloomberg data.
“Short term, the market got oversold,” Michael James, a managing director of equity trading at Wedbush Securities Inc. in Los Angeles, said in a phone interview. “There is at least a willingness of buyers to step in today given the weakness that we’ve seen over the last several days. You have some potential market-moving news tomorrow, with earnings from JPMorgan and Wells Fargo.”
The S&P 500 has retreated almost 3 percent over the last six days. Stocks fell today even after applications for U.S. jobless benefits last week decreased by 26,000 to 350,000, the fewest since March 2008, Labor Department figures showed. Economists forecast 372,000 claims, according to the median estimate in a Bloomberg News survey. The decrease reflected the volatility of claims during the annual auto-plant retooling period.
Import Prices
Prices of goods imported into the U.S. decreased more than forecast in June as declining energy costs curbed inflation. The 2.7 percent plunge in the import-price index was the biggest since December 2008 and followed a 1.2 percent drop in May, Labor Department figures showed. Prices excluding fuel fell 0.3 percent, the most in almost two years.
Among the 10 main industry groups in the S&P 500, technology and financial companies lost more than 1 percent for the biggest declines. Intel Corp., Cisco Systems Inc. and Microsoft Corp. dropped more than 2.2 percent to lead losses in 22 of 30 stocks in the Dow.
Supervalu Sinks
Supervalu Inc. (SVU) sank 49 percent after the third-largest U.S. grocery chain said it will review strategic alternatives for the business and suspended its dividend. Marriott International Inc., the biggest publicly traded U.S. hotel chain, dropped 6.4 percent after cutting its forecast for growth outside North America.
Procter & Gamble and Merck rallied 3.8 percent and 4.1 percent respectively, helping the Dow recover from a drop of as much as 112 points to close down 31.26 points at 12,573.27. P&G climbed the most since 2009 after the Federal Trade Commission cleared William Ackman’s hedge fund company to take a stake in the maker of household products. Merck rallied to a four-year high after reporting an osteoporosis drug worked well in a trial.
JPMorgan Chase & Co. slipped 1.6 percent. Investors will look for Chief Executive Officer Jamie Dimon to restore confidence when the company releases second-quarter results tomorrow, the first major U.S. bank to report. The bank may say profit fell 40 percent to 76 cents a share, excluding accounting adjustments, according to the average estimate from analysts in a Bloomberg survey. JPMorgan shares have dropped 16 percent since May 10, when the company disclosed a loss on credit derivatives of at least $2 billion.
JPMorgan Puts
Bearish options on JPMorgan are the cheapest in two years on speculation the shares already reflect the bank’s multibillion-dollar trading loss. Puts protecting against a 10 percent drop in the New York-based lender cost 1.15 times more than calls betting on a 10 percent gain, according to data on 30-day options, lowest so-called skew since January 2010.
Bank of America strategists reduced earnings forecasts for S&P 500 companies by 1.4 percent for this year and next year. Strategists Dan Suzuki, Savita Subramanian and Jill Carey now project earnings of $102 per share for 2012 and $109 for 2013, according to a note to clients today.
`Drift Lower'
“Although the bottom-up consensus forecasts have continued to drift lower since last summer, they still appear too optimistic in light of the ongoing European crisis, the looming fiscal cliff and the slowdown in China,” the strategists wrote. “The recent weakness in earnings revision and guidance trends may be a sign that consensus expectations are in the early stages of being reset lower.”
Analysts surveyed by Bloomberg project that earnings at S&P 500 companies decreased 1.8 percent in the second quarter, the first drop since 2009, and will increase 7.2 percent for all of 2012. At this time last year, they predicted profit growth of 13 percent for 2012. Congress has yet to resolve the so-called fiscal cliff, which represents more than $600 billion in higher taxes and reductions in defense and other government programs in 2013 that will take place without action.
The yield on 10-year U.S. Treasury notes fell four basis points, or 0.04 percentage point, to 1.4760 percent, approaching the June 1 all-time low of 1.4387 percent.
The government’s sale of $13 billion in 30-year bonds today was the second consecutive U.S. auction to attract a record low yield. The long bonds were sold at a yield of 2.580 percent, down from the previous record of 2.72 percent at a June 14 sale. Yesterday’s 10-year note auction drew a yield of 1.459 percent.
Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., told CNBC that economic growth in the U.S. is slowing even as the housing market shows signs of rebounding.
‘Tempered Down’
“The general economy in the United States has been more or less flat, and so the growth has tempered down,” he said today in an interview with the television station from Sun Valley, Idaho.
Buffett’s remarks contrast with his comment a year ago to Bloomberg Television’s Betty Liu in Sun Valley that the economy and jobs will “come back big time” when residential construction recovers. U.S. unemployment has exceeded 8 percent for more than three years. Economists on average predict the U.S. economy will expand 2.1 percent in 2012, down from a projection of 3.3 percent in February 2011.
Builders Rally
Shares of builders advanced, with Standard Pacific Corp., Lennar Corp. and KB Home climbing at least 3.6 percent to pace an advance in 10 of 11 stocks in the S&P Supercomposite Homebuilding Index.
The Federal Reserve yesterday signaled that a further economic slowdown would bring growing support among policy makers for additional steps to spur the three-year expansion. A few members of the Federal Open Market Committee said the Fed should ease policy to move the economy toward its targets for full employment and stable prices, according to minutes of the June 19-20 meeting released yesterday. Several others said more action could be warranted if growth slows, risks intensified or inflation seemed likely to fall “persistently” below their goal.
The Stoxx Europe 600 Index fell 1.1 percent for its biggest drop of the month. Temenos Group AG plunged 28 percent to a three-year low after the Swiss maker of banking software cut its revenue-growth forecast and said Chief Executive Officer Guy Dubois will leave. Aegis Group Plc surged 45 percent as the U.K. advertising company agreed to be bought by Japan’s Dentsu Inc. in a 3.16 billion-pound ($4.9 billion) deal.
The MSCI Emerging Markets Index (MXEF) sank 1.9 percent, its biggest decline since May 23 The Kospi Index fell 2.2 percent and the won weakened 1.1 percent versus the dollar after the Bank of Korea unexpectedly cut borrowing costs. Chinese stocks listed in Hong Kong slid 2.2 percent and benchmark indexes fell more than 1 percent in India, Hungary, the Czech Republic, Taiwan and Thailand.
European Yields
The yield on Australia’s one-year note touched a record low and rates South Korea’s debt due March 2017 slid to the lowest level since Bloomberg started compiling Korean bond yields in 2000. Austrian and French five-year yields also slid to records. Spanish 10-year yields increased six basis points to 6.64 percent after plunging 48 points in the previous two days after European governments moved to quicken emergency loans to the country’s banks.
The European Central Bank said overnight deposits of financial institutions dropped to 324.9 billion euros, the lowest level in almost seven months after policy makers said last week they would no longer pay interest for the funds.
’Risk Off’
The euro fell 0.3 percent to $1.2199 and reached $1.2167, the lowest since June 30, 2010. It weakened 0.9 percent against the yen. The dollar lost 0.6 percent versus the yen, while strengthening against 13 of 16 major peers.
“With the currency market in full risk off mode this morning, lets be clear that this is a move driven by deleveraging and not relative balance sheet expansion,” Kathy Lien, managing director of foreign-exchange strategy at BK Asset Management in New York, wrote in a note to clients. “With no major economic data or news catalyst, investors had been gradually swapping euros and other risky currencies for the U.S. dollar and Japanese yen throughout the European trading session.”
Commodities
Oil in New York rose 0.3 percent to $86.08 a barrel, recovering from a drop of as much as 1.9 percent. The U.S. said it will target Iran’s weapons proliferation networks and “front companies” helping to evade international sanctions.
Natural gas rose 0.7 percent as forecasts for hotter-than- normal weather in the U.S. Northeast signaled stronger demand from power plants. The fuel reversed a drop of as much as 4.7 percent triggered when U.S. government data showed stockpiles expanded by 33 billion cubic feet to 3.135 trillion. Analyst estimates compiled by Bloomberg showed an expected increase of 27 billion cubic feet.
The S&P GSCI gauge of 24 commodities added 0.4 percent as 12 of its 24 commodities advanced.
Corn climbed 4 percent to $7.3225 a bushel after Goldman Sachs Group Inc. and Citigroup Inc. raised their price forecasts because of tighter supplies because of crop damage amid the worst U.S. drought since 1988. Wheat rallied 2.5 percent and soybeans climbed 0.4 percent.
Most of the U.S. Midwest will get less than 20 percent of normal rain in the next five days, and temperatures will rise above 100 degrees Fahrenheit (35 degrees Celsius) in the four days ending July 18, according to T-storm Weather LLC. As much as 51 percent
Cocoa futures plunged 4.5 percent to lead losses in commodities after European bean usage declined 18 percent to a three-year low in the second quarter.
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