U.S. equities fell, halting a two- day gain for the Standard & Poor’s 500 Index, as energy shares led losses amid a plunge in natural gas and a report showed a drop in pending home sales. Treasuries retreated before the Federal Reserve meets to discuss tapering its bond purchases.
The S&P 500 lost 0.3% to 1,686.15 at 3:23 p.m. in New York to pare its July rally to less than 5%, poised for its sixth monthly gain of the year. Ten-year Treasury yields increased 2.5 basis points to 2.59%. Natural gas declined to the lowest in 21 weeks on forecasts for mild weather in the eastern U.S. The yen appreciated against all 16 major peers while the Shanghai Composite Index dropped 1.7% after Chinese industrial companies reported slower profit growth. The MSCI Emerging Markets Index slid 0.8%.
An index of pending U.S. home sales dropped 0.4% after climbing a month earlier to the highest level since 2006, the National Association of Realtors said. Net income at Chinese industrial companies rose 6.3% in June from a year earlier, data showed on July 27, down from 15.5% in May. The Federal Open Market Committee, which has said it may start paring stimulus should the economy meet the central bank’s forecasts, convenes July 30-31.
“Some of the economic data appears softer than we anticipated,” Eric Teal, who helps oversee $5 billion as chief investment officer at First Citizens BancShares Inc., said in a telephone interview from Raleigh. “Some pause might be in order over the next few months after the strong gains the first half of the year.”
The Chicago Board Options Exchange Volatility Index, or VIX, climbed 5.7% to 13.45 today, after adding 1.4% last week. The equity volatility gauge reached its highest level this year in June and has since fallen 34%.
The S&P 500 retreated after climbing for two straight days. The index is down 0.7% from its last record closing level on July 22. Energy shares slumped 1.1% as a group and financial companies lost 0.8% to lead declines among the 10 main industry groups in the S&P 500, with telephone and utility stocks posting the only gains. Bank of America Corp., Chevron Corp., Exxon Mobil Corp. and JPMorgan Chase & Co. lost at least 0.8% for the biggest declines in the Dow Jones Industrial Average.
Perrigo Co. dropped 6.6% after saying it will buy Irish drugmaker Elan Corp. for $8.6 billion. Omnicom Group Inc. added 0.5% after saying it will merge with France’s Publicis Groupe SA to create the world’s largest advertising company.
Earnings beat estimates at about 73% of the 265 companies in the S&P 500 that have released results so far in the reporting season, according to data compiled by Bloomberg. Profits have increased 5.8%, compared with a projection for 3.3% growth in a Bloomberg compilation of analysts’ estimates.
U.S. financial companies, fueled by the fastest earnings growth in the S&P 500, are poised to reclaim their position as the market’s biggest industry for the first time since the credit crisis.
Banks, brokers and insurance companies make up 16.8% of the S&P 500, almost double the level from 2009 and closing in on technology companies at 17.6%, according to data compiled by Bloomberg. Bank of America Corp. and Morgan Stanley are helping lead gains in the index this month after profits topped estimates. Intel Corp. and Microsoft Corp. are among the worst after earnings trailed forecasts.
Thirty-year U.S. Treasury bonds also declined, sending their yield up four basis points to 3.66%.
The Fed has said economic data will determine the timing and pace of any reduction in its asset purchases. The central bank will probably maintain its benchmark interest rate at 0.25% after concluding its two-day policy-setting meeting on July 31, economists predicted. The Fed will begin to reduce its bond-purchase program in September, according to economists surveyed by Bloomberg.
U.S. gross domestic product probably rose 1% on an annualized basis in the second quarter, after gaining 1.8% in the previous period, data is forecast to show July 31, according to the median of economists’ estimates compiled by Bloomberg. Payrolls increased by 185,000 after a 195,000 gain in June, and the jobless rate fell to 7.5% from 7.6%, according to the median forecast of economists in a Bloomberg survey before Labor Department data on Aug. 2.
“It’s a big week with earnings reports, central bank meetings, and of course U.S. payrolls,” Nader Naeimi, the Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages more than $130 billion, said by phone. “Where markets go from here depends a lot on the data and the Fed.”
The Stoxx Europe 600 Index rose 0.1% after a two-day decline, with trading volume 25% less than the 30-day average. Danone advanced 3.2% as the owner of Evian bottled water and Activia yogurt reported second-quarter sales growth that beat estimates. Elan surged 3.7% in Dublin after the Irish drugmaker agreed to Perrigo’s $8.6 billion offer.
In European bond markets, Italian declined for a fifth day, pushing the 10-year yield five basis points higher to 4.46%. Yields on Spanish debt of similar maturity increased six basis points to 4.68%.
The yen appreciated 0.5% to 129.77 per euro, while Europe’s currency slipped 0.1% to $1.3263 as the dollar gained against 12 of 16 major peers. The New Zealand and Australian dollars declined more than 1% versus the yen, the most among 16 major currencies tracked by Bloomberg.
U.S. natural gas slid as much as 4% to $3.413 per million British thermal units, the lowest since March 4. MDA Weather Services said temperatures would be mostly cooler than normal in the eastern two-thirds of the U.S. through Aug. 12. The high in New York on Aug. 6 may be 73 degrees Fahrenheit (23 Celsius), 11 below average, according to AccuWeather Inc. The forecasts spurred bets of reduced demand for natural gas from power producers.
Nickel dropped 1.1% and zinc declined 0.5% while gains in sugar, gold and silver left the S&P GSCI Index of commodities little changed. Oil was little changed, settling 15 cents lower at $104.55 a barrel in New York.
The MSCI Emerging Markets Index slumped for a fourth day and the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid as banks declined after the State Council ordered the National Audit Office to conduct a review of local government debt. Benchmark stock gauges in Indonesia and Thailand sank at least 1.5% while the Malaysian ringgit and the Indian rupee slid about 0.6% versus the dollar.