U.S. Stocks Retreat With Gold, Oil While Euro Strengthens

The Standard & Poor's 500 Index lost 0.6 percent to 1,697.37 at 4 p.m. in New York for its biggest drop since June 24. The Stoxx Europe 600 Index erased earlier gains to close down 0.4 percent. Ten-year Treasury notes pared losses, with yields up less than one basis point at 2.64 percent, as the U.S. sold $32 billion in three-year securities. The euro advanced 0.4 percent to $1.3310. Oil decreased 1.2 percent, reversing earlier gains. Gold futures lost 1.5 percent for a sixth straight drop, the longest slump in 11 months.

The U.S. trade deficit narrowed more than forecast in June to the lowest level since October 2009 as crude oil imports declined and American companies shipped more goods abroad, causing Goldman Sachs Group Inc. and Barclays Plc to raise their estimates for second-quarter economic growth. Two Fed officials indicated today that reductions in central-bank stimulus were possible.

"You got the stock market back to all-time highs, so a prudent action is you sell the highs and buy the lows, and we're a long way from the lows," Tim Hartzell, who helps manage about $425 million as chief investment officer at Sequent Asset Management in Houston, said by phone. "We all have a fear of the third quarter and the third quarter could be a lot more volatile than traditionally given the politicized job interview for the Fed position."

Fed Speakers
The S&P 500 slipped 0.1 percent from a record yesterday after Dallas Fed President Richard Fisher said the central bank is closer to slowing $85 billion in monthly bond buying and warned investors not to rely on that stimulus. Atlanta Fed President Dennis Lockhart told Market News International that if economic growth and job creation pick up as expected, the Fed should proceed with the "removal" of its asset purchases.

Fed Bank of Chicago President Charles Evans, who has been among the strongest proponents of record monetary accommodation, said today he "would clearly not rule" out a decision to begin dialing back the purchases in September.
"We've seen good improvement in the labor market, there's no question in my mind about that," Evans said in a meeting with reporters in Chicago. "I'm still wanting to see greater evidence that it's a sustainable improvement."
U.S. Movers
Among stocks moving today, American Eagle Outfitters Inc. tumbled 12 percent, the most in three years, after the teen apparel chain yesterday said second-quarter profit was less than it forecast amid disappointing sales of women's clothing and weak shopper traffic. Abercrombie & Fitch Co. lost 4.1 percent. CVS Caremark Corp. slid 2.8 percent after its forecast for full-year adjusted earning-per-share trailed analysts' estimates.

International Business Machines Corp. (IBM) declined 2.3 percent today after saying it's requiring the majority of its U.S. employees in the hardware unit to take a week off with reduced pay as it cuts costs. Credit Suisse Group AG cut the stock to the equivalent of sell, saying IBM has fewer ways to manage its portfolio to reach its earnings goals and has seen "gradual decline in the company's competitive position across its industries."
Valuation Watch
Washington Post Co. (WPO) climbed 4.3 percent to an almost five-year high after agreeing to sell the Washington Post newspaper to Amazon.com Inc. Chief Executive Officer Jeff Bezos for $250 million.

The S&P 500 closed at a record of 1,709.67 on Aug. 2, pushing its valuation to a three-year high. The benchmark index ended last week trading at 15.5 times estimated earnings, compared with an average of 13.9 over the last five years, data compiled by Bloomberg showed. The index is up 19 percent in 2013 and has rallied about 151 percent from its bear-market low in 2009.

"The U.S. market is a bit overbought at the moment," said Enrico Carbonelli, a Lugano, Switzerland-based associate director of portfolio management at BSI SA, which oversees the equivalent of $93 billion. "In the coming month, we may see a little bit of a correction before going higher. There's a bit of concern about the Fed tapering its stimulus, but bonds will probably suffer more than equities."

Low Volume
Volume of exchange-listed stocks reached 4.65 billion yesterday, the slowest full-day trading this year, data compiled by Bloomberg show. Intraday price swings have narrowed, with fluctuations in the S&P 500 averaging 0.65 percent during the past 20 days through yesterday, the smallest change over a comparable period since Feb. 1, the data show.
Per-share adjusted earnings have increased 3.2 percent for the 419 companies in the S&P 500 that posted results so far in the reporting season, with 73 percent beating the average analyst estimate. Analysts project companies in the gauge will increase their third-quarter earnings per share by 3.3 percent from a year earlier, and their profit in the fourth quarter by 9.9 percent, according to estimates compiled by Bloomberg.

The Stoxx 600 closed at a nine-week high yesterday following six straight days of gains. Losses today were led by commodity, utility and insurance companies as 14 of the index's 19 industry groups retreated. Germany's DAX Index slumped 1.2 percent today, the most in a month.

European Movers
Salzgitter AG sank 12 percent as Germany's second-largest steelmaker forecast a pretax loss of about 400 million euros ($530 million) this year amid a slump in demand. Lanxess AG slid 4.3 percent after the German chemical maker cut its profit outlook. Fresnillo Plc, the biggest primary silver producer, tumbled 11 percent in London trading as profit fell.
The volume of shares changing hands in Stoxx 600 companies was 6.3 percent lower than the 30-day average, according to data compiled by Bloomberg, and about 7 percent lower for the S&P 500.
The MSCI Emerging Markets Index fell for the first time in four days, losing 1 percent. India's Sensex Index dropped 2.3 percent and main gauges in Russia, Taiwan and the Philippines slid more than 1 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong lost 0.8 percent while the Shanghai Composite Index rose 0.5 percent.

Aussie Rallies
The Aussie gained against 15 of 16 major peers as traders pared bets on a reduction in Australian borrowing costs after Reserve Bank Governor Glenn Stevens lowered the benchmark interest rate to a record and refrained from signaling there was room for more cuts. Australianbonds slid, with the 10-year yield rising 12 basis points to 3.71 percent.

Stevens cut the overnight cash-rate target by a quarter percentage point to 2.5 percent and said the RBA's board "has previously noted that the inflation outlook could provide some scope to ease policy further." Last month he said the outlook for prices "may provide some scope for further easing."

New Zealand's currency rose after the nation's government said it expects the economy will avoid any immediate harm from the suspension of sales of some dairy products to China after the identification of a bacterial contamination that may cause botulism. The kiwi strengthened 1 percent to 79.02 U.S. cents after weakening for six straight days.

To contact the reporters on this story: Nick Taborek in New York at ntaborek@bloomberg.net; Stephen Kirkland in London at skirkland@bloomberg.net
To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

Source: BLOOMBERG