U.S. stocks fluctuate as bonds slip on earnings, Fed speculation

July 23, 2013 10:17 AM

U.S. stocks fluctuated as investors weighed corporate earnings while Treasuries declined for the first time in three days amid speculation on when the Federal Reserve may scale back its asset purchases.

The Standard & Poor’s 500 Index fell 0.1% at 2:34 p.m. in New York and the Stoxx Europe 600 Index slumped 0.3% as both gauges erased earlier advances. The MSCI Emerging Markets Index rose 1.7% to a six-week high amid optimism over China’s economic growth. The yield on 10-year Treasuries increased three basis points to 2.51%. Volatility measures in stocks, bonds and currency markets touched the lowest levels in about two months. Corn tumbled to a 33-month low on forecasts for cool, wet weather.

Apple Inc. and AT&T Inc. are among 36 companies in the S&P 500 set to report results today. An index of manufacturing in the mid-Atlantic region of the U.S. unexpectedly contracted in July. Chinese Premier Li Keqiang said the slowest economic growth policy makers will tolerate is 7%, Beijing News reported today.

“What you’re seeing is revenues are coming in pretty lackluster and profits seem to be doing a little better than gains in sales,” Hank Herrmann, Overland Park, Kansas-based chief executive officer of Waddell & Reed Investment Management Co., said by phone. His firm manages $104 billion. “The market had a period of digesting the confusion over Fed tapering. For the moment, it’s focused on individual company fundamentals.”

Of the 130 companies in the S&P 500 to have already posted earnings for the quarter, 71% have beat analysts’ profit estimates, data compiled by Bloomberg show. About 52% have surpassed forecasts for revenue.

Netflix, UPS

Netflix Inc. slid 4.4% after fewer subscribers signed up for its service than analysts had forecast. Travelers Cos., the second-largest U.S. commercial insurer, tumbled 3.5% as book value had the biggest quarterly decline since 2008 as higher interest rates pressured its bond portfolio. Texas Instruments Inc. rose 4.1% after forecasting third- quarter sales and profit that may exceed forecasts.

United Technologies Corp. gained 3.3%, leading the Dow Jones Industrial Average to a record high, as the company boosted the lower end of its 2013 profit forecast. United Parcel Service Inc. was little changed as second-quarter profit fell 4% after the world’s largest package-delivery company lowered its full-year forecast earlier this year.

Fed stimulus and corporate earnings have helped fuel a surge in stocks worldwide, with the S&P 500 jumping as much as 151% from its March 2009 low. Benchmark indexes have reached record highs after Fed Chairman Ben S. Bernanke said last week the central bank remains flexible about the duration of its asset-purchase program.

Stimulus Predictions

Yields on 10-year Treasury notes climbed today amid speculation the Fed is moving closer to winding down its asset- purchase program. The U.S. central bank will begin tapering its $85 billion in monthly bond purchases in September, according to 50% of economists surveyed by Bloomberg.

Treasuries remained lower after the U.S. sale of $35 billion in two-year notes was met with weaker-than-average demand. The notes drew a yield of 0.336%, compared with a forecast of 0.338% in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers. The government will sell $35 billion in five-year debt tomorrow and $29 billion in seven-year securities on July 25.

Factory Index

U.S. equities fell earlier in the day after the Fed bank of Richmond’s factory index slid to minus 11 for July. Readings greater than zero signal expansion in the region that includes the Carolinas, the District of Columbia, Maryland, Virginia and West Virginia. The median projection in a Bloomberg survey of economists called for a reading of 9.

The Chicago Board Options Exchange Volatility Index, or VIX, jumped 3.6% today to 12.73, snapping a streak of four straight declines. The equity volatility gauge, which moves in the opposite direction as the S&P 500 about 80% of the time, reached a high for the year on June 20 and tumbled 40% through yesterday.

The Stoxx 600 dropped 0.3%, reversing an earlier advance of at least 0.5% after reaching a seven-week high.

Swatch Rises

Royal KPN NV soared 2.8%, extending yesterday’s 13% rally, after saying it will sell its German mobile-phone business to Telefonica SA. Swatch Group AG climbed 1.7% as the maker of Swiss watches reported first-half profit that exceeded analyst predictions. Sulzer AG sank 14%, the most since October 2008, as the Swiss pump maker cut its forecasts.

The VStoxx Index, which gauges the price of options on the Euro Stoxx 50 Index, fell 0.8% to 17.34 after touching the lowest level since May 22 earlier in the trading day.

Emerging-market stocks rose as benchmark gauges in South Korea, Taiwan, the Philippines, Thailand and Indonesia climbed at least 0.9%. The Beijing News reported Chinese premier Li Keqiang said 7% growth is the minimum policy makers will tolerate, signaling the nation will act to support the economy if needed.

The Hang Seng China Enterprises Index of mainland shares listed in Hong Kong jumped 3.9%, the most in more than six months, and the Shanghai Composite Index gained 2%.

The Bloomberg Dollar Index slipped 0.2%, dropping for a third straight day. The rupiah lost 1.2% as Bank Indonesia allowed a more rapid slide toward levels quoted in the offshore market. Hungary’s forint fell versus 16 major counterparts after the central bank cut its main interest rate for a 12th consecutive month and President Gyorgy Matolcsy said he expects to extend monetary easing.

Volatility Indexes

JPMorgan Chase & Co.’s Global FX Volatility Index dropped for a ninth straight day to 9.15%, the lowest level since May 13. It touched a one-year high of 11.96% on June 24.

Germany’s 10-year bund yield climbed four basis points to 1.55%. Volatility in Treasuries as measured by the Merrill Lynch Option Volatility Estimate Move Index fell to 72.62 yesterday, the lowest level since May 24. The figure is down from 117.89 on July 5, which was the most since December 2010. The one-year average is 64.71.

Corn futures tumbled 2.2% after reaching the lowest level since October 2010. Forecasts for cool, wet weather improved prospects for a crop expected to be a record in the U.S., the world’s biggest grower. Wheat fell 0.9%.

Oil gained 0.2% to $107.15 a barrel, after dropping as much as 1.4% earlier in the session. Natural gas futures increased for the first time in three days, jumping as much as 2.3%, on speculation that a heat wave last week reduced U.S. stockpile gains.

www.bloomberg.com

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