US stocks slid amid concern US corporate earnings will disappoint investors and after the International Monetary Fund cut growth forecasts. Oil led commodities higher as Mideast tensions flared, while Treasuries and the dollar rose.
The Standard & Poor's 500 Index decreased 0.7 per cent to 1,445.46 at 2:50 p.m. in New York while the Stoxx Europe 600 Index lost 0.5 per cent. The S&P GSCI gauge of 24 commodities was 1.6 per cent higher as oil surged more than 3 per cent after Turkey sent more weapons to the Syrian border. US 10-year note yields dropped three basis points to 1.71 per cent. The dollar climbed versus 11 of its 16 major peers.
The US third-quarter earnings season begins with Alcoa Inc. today, the fifth anniversary of the S&P 500's record close at 1,565.15. The IMF said the world economy will grow 3.3 per cent this year, the slowest pace since the 2009 recession, and 3.6 per cent next year. European finance ministers praised Greece's determination to cut spending and declined to press Spain for more budget cuts at a meeting yesterday.
"There's so much pessimism over earnings that there's room for upside with any positive surprise," Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $US170 billion, said in a telephone interview. "Overall I think traders are too pessimistic. Even with the IMF economic numbers we got, those are still pretty good numbers. The IMF is forecasting global growth next year will be above 3 per cent. That's probably higher than what most people are fearing at the moment."
Apple Inc. lost 0.5 per cent to $US634.74, paring an earlier plunge of 2.3 per cent that extended its decline from a record $US702.10 on Sept. 19 to more than 10 per cent, or what is commonly referred to as a "correction." Apple is likely to face "increasing challenges" as smartphone growth in developed markets slows, Nomura Securities International Inc. analyst Stuart Jeffrey said today.
Analysts' average estimate for Apple's fiscal fourth- quarter adjusted earnings have fallen as much as 15 per cent this year to $US8.92 a share from $US10.55 in April, according to data compiled by Bloomberg. The company reports results on Oct. 25.
Technology shares in the S&P 500 lost 1.5 per cent for the biggest drop among 10 groups. Intel Corp., the world's largest semiconductor maker, slipped 2.4 per cent as Sanford C. Bernstein & Co. downgraded the shares. Edwards Lifesciences Corp. sank 19 per cent after saying preliminary third-quarter sales would be lower than forecast. Netflix Inc. lost 8.2 per cent after Bank of America Corp. lowered its rating to underperform.
Earnings at companies in the S&P 500 are projected to fall 1.7 per cent in the third quarter in the first decline since 2009, according to analyst forecasts compiled by Bloomberg. Wagers that US stocks will move in lockstep have dropped to a four-year low on speculation investors will focus on company results during earnings season.
The Chicago Board Options Exchange S&P 500 Implied Correlation Index has fallen 41 per cent this year and reached 45.42 last week, the lowest level since October 2008, according to data compiled by Bloomberg. The gauge uses options to measure expectations about whether S&P 500 companies will move in unison.
The S&P 500 index closed yesterday at 1,455.88, less than 7 per cent below the 2007 record. The measure has recovered after plunging 57 per cent to a 12-year low on March 9, 2009, as the subprime mortgage crisis spread among financial firms. Consumer discretionary shares and financial firms, which advanced more than 150 per cent, have led the gains.
Banks, lenders and insurers are still down 55 per cent since October 2007, more than three times any other industry, data compiled by Bloomberg show. Even after doubling, US stocks are trading at 14.8 times earnings, a 9.8 per cent discount to their five-decade average ratio, data compiled by Bloomberg show.
Treasuries rose the most in three weeks as the US sale of $US32 billion in three-year notes met record demand after the International Monetary Fund cut its economic forecasts, boosting the appeal of the safest assets. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was a 3.96, topping the previous high last month of 3.94 and an average of 3.56 for the previous 10 sales. Existing three-year yields were little changed at 0.34 per cent.
European banks fell 0.9 per cent as a group and were the biggest drag on the Stoxx 600 among 19 groups. Nationalized Spanish lender Bankia dropped 9.8 per cent as Expansion reported that parent company BFA will book losses of more than 4.5 billion euros ($US5.8 billion) this year.
The euro retreated against 13 of 16 major peers, weakening 0.8 per cent to $US1.2871, as a meeting between German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras failed to reassure investors an accord is imminent on Greece's next aid installment.
The two leaders stood side by side at a press conference as protesters massed outside the Parliament building in a capital on virtual lockdown. Merkel has become the face of austerity in a country suffering a fifth year of recession, which many Greeks blame on German-led conditions attached to emergency loans.
European finance ministers meet for second day in Luxembourg after yesterday declaring operational the permanent aid fund, the 500 billion-euro European Stability Mechanism.
Ten-year Spanish yields increased 11 basis points to 5.82 per cent, while Italian rates were up three points at 5.11 per cent.
Of the 24 commodities tracked by the S&P GSCI Index, 16 advanced. Crude rebounded 3.2 per cent to $US92.21 a barrel as Turkey sent more tanks and missile defense systems to the Syrian border yesterday. Brent oil increased 2.4 per cent to $US114.49. The discount of the benchmark US crude oil grade to European futures closed at $US22.49 yesterday, the largest gap since Oct. 20, 2011.
Iranian authorities are still seeking to stabilize the currency market days after a plunge in the value of the rial and protests that have left transactions by exchange houses almost at a halt. The central bank today announced a rate of 25,480 rials to the dollar for trading in the government's newly opened exchange center, according to the state-run Mehr news agency. Today's official rate is lower than yesterday's, which the government had set at 25,550 rials against a dollar.
The Shanghai Composite Index rose 2 per cent as investors bet the government will come up with steps to support the market. South African's rand strengthened 1.4 per cent to 8.7723 per dollar, climbing for the first time in five days, after the currency's decline to the weakest in more than three years yesterday.