Of the 233 companies in the S&P 500 that have posted quarterly results so far, 74% have exceeded analysts’ profit estimates and 57% have topped sales projections, data compiled by Bloomberg show.
“Valuations have moved faster than the underlying earnings,” Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees about $130 billion, said by telephone. “You’ve had a willingness by investors to take on more risk without compensatory more earnings. In the long run in order to sustain higher prices, you need higher earnings.”
Equity valuations have climbed 16% this year, with the S&P 500 trading at 16.3 times reported earnings, close to the highest level since May 2010, data compiled by Bloomberg show.
The Stoxx Europe 600 Index slipped 0.5%. The volume of shares changing hands in Stoxx 600 companies was 18% less than the 30-day average, according to data compiled by Bloomberg.
BASF lost 4.5% as it said meeting its targets looked difficult, while Orange SA, France’s former phone monopoly, dropped 3.2% after posting an 8.5% drop in earnings. Michelin & Cie., Europe’s largest tiremaker, sank 1.4% after reporting a 13% decline in first-half profit. Roche Holding AG advanced 0.6% as the maker of cancer drugs reported earnings that exceeded estimates.
Treasuries were little changed after the U.S. sale of $29 billion in seven-year notes. The notes drew a yield of 2.026%, the highest since July 2011. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.54, the lowest since May 2009, compared with an average of 2.65 for the past 10 sales.
The yield on the current seven-year note increased 1 basis point to 2%. Treasury 10-year yields rose 1 basis point to 2.60%, after earlier reaching the highest level in more than a week following the report on durable goods.
The MSCI Emerging Markets Index fell for a second day, slipping 0.5%. The Shanghai Composite Index lost 0.6%, Russia’s Micex Index slid 0.5% and India’s Sensex declined 1.4%. Turkish stocks dropped for a sixth day, the longest losing streak in seven weeks, retreating 0.2%.