Last-Second Lurch in S&P 500 Ends Bid for Third Year of Gains

December 30, 2011, 10:13 PM EST By Nina Mehta

Dec. 30 (Bloomberg) -- A two-point decline completed in the last seconds of trading sent the Standard & Poor’s 500 Index to a 2011 loss of 4/100ths of a point, ending a two-year streak of gains for the benchmark gauge of American equities.

The measure traded at an average price of 1,261.18 during the day and stood at 1,260 with 10 minutes left, up about 2 points from its Dec. 31, 2010, close of 1,257.64. It remained positive for the year with 15 seconds to go at 1,257.91 before slipping to 1,257.60 on the session’s last trades.

“There was a frenzy,” said Stephen Guilfoyle, who works on the floor of the New York Stock Exchange as U.S. economist for Meridian Equity Partners in New York. “You saw people breaking into a run, the old-school nervousness, some shouting. You see that nervousness when orders are coming in the last minute.”

The volatility was characteristic of a year in which stocks swung at a daily rate of twice the 50-year average after the S&P 500 reached a three-year high in April. From its peak of 1,263.61, the index plunged 19 percent through Oct. 3 and then climbed back to where it began the year.

This year’s move was the smallest since 1947 when the index closed exactly unchanged. Individual stocks were more volatile than in 2009 and 2010, with 55 losing more than 30 percent this year compared with a total of 13 in the prior two.

‘On a Rollercoaster’

“It’s almost like you’re getting on a rollercoaster, where you get on and it’s a wild ride, and you get off at the exact same point,” Brian Jacobsen, who helps oversee about $209 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a telephone interview.

About 4.1 billion shares changed hands on all U.S. exchanges today, the third-slowest full-day session of the year and 45 percent below the three-month average, according to data compiled by Bloomberg, as trading slowed before the New Year holiday.

The 2.6-point retreat between 3:50 p.m. and 4 p.m. was almost twice as big as the next largest decline for any 10- minute period during the day, data compiled by Bloomberg show. Volume during the period was at least 126 percent greater than in any other comparable interval before the close.

“It looks notable on a chart because the rest of the day was so lame and without any movement whatsoever,” Manoj Narang, founder and chief executive officer of Tradeworx Inc., an automated trading firm in Red Bank, New Jersey, said in a phone interview.

--With assistance from Ksenia Galouchko, Jeff Kearns, Chris Nagi and Inyoung Hwang in New York. Editors: Chris Nagi, Michael P. Regan

To contact the reporter on this story: Nina Mehta in New York at nmehta24@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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RBA’s Stevens May Lift Rates in Third Quarter: Australia Credit

June 05, 2011, 10:16 AM EDT By Michael Heath

June 6 (Bloomberg) -- The Reserve Bank of Australia may resume lifting the developed world’s highest borrowing costs in July or August to counter inflation fueled by the biggest surge in demand since 2009, rates in money markets show.

Yields on July and August interbank cash rate futures advanced last week for the first time in a month after a gross domestic product report showed demand expanded 1.3 percent in the first quarter, more than twice as much as in the prior period. June contracts show traders are betting RBA Governor Glenn Stevens will leave the central bank’s target interest rate at 4.75 percent tomorrow, where’s it’s been since November.

Household spending accounts for 55 percent of Australia’s economy, and the central bank has sought to restrain consumption with 175 basis points of rate increases between October 2009 and November, letting investment in mining drive growth. A June 2 report showing the biggest increase in retail sales in 17 months signals higher incomes are encouraging consumers to spend more, spurring the first weekly decline for benchmark 10-year notes since April 8.

“The question over the timing of the next RBA move has come down to the propensity to consume,” said Jarrod Kerr, director of Australia rates strategy at Credit Suisse Group AG in Singapore. “The strength of consumption and the surge in income growth suggests the RBA will deliver another rate rise in the coming months.”

Soaring Currency

The RBA has expressed concern that higher consumption will clash with capacity constraints such as skill shortages caused by mining investment that the government estimates will reach A$76 billion ($81 billion) next fiscal year.

Twenty-three of 28 economists surveyed by Bloomberg News predict Stevens will keep rates unchanged tomorrow. Five forecast an increase to 5 percent.

Australia’s currency has soared 27 percent in the past year as surging commodity shipments to China and India underpin investors’ expectations that the RBA will raise rates.

The so-called Aussie reached $1.1012 on May 2, the highest since exchange controls were scrapped in 1983, and closed at $1.0716 on June 3 in New York.

Unemployment has fallen to a two-year low and consumer price growth accelerated last quarter to the fastest pace since 2006 as companies including BHP Billiton Ltd., the world’s biggest mining company, expand output.

Iron Ore, Coal

“Australia’s terms of trade are likely to rise further in the June quarter, to be above the level assumed a few months ago -- and at their highest level in at least 140 years -- boosted in particular by high prices for iron ore and coal,” the RBA said in its quarterly policy statement on May 6, referring to a measure of income earned from exports.

The yield on July cash-rate futures advanced 2.5 basis points to 4.825 percent, while the rate on the August contract climbed 3.5 basis points to 4.875 percent last week. The chances of a July rate increase climbed to 30 percent on June 3 from 20 percent on May 27, while the probability of an advance in August rose to 50 percent from 36 percent.

The current stretch is the fourth time since mid-2007 that Australia’s central bank has held policy for five-straight meetings. The RBA raised rates in November 2010 and October 2009, after ending such a pause in October 2008 with a reduction in the benchmark.

Australia’s economy shrank 1.2 percent in the first quarter, the most since 1991, as floods in the northeast slashed coal exports, a June 1 report showed. Even so, the currency rose and bonds fell the most in almost four months after the data as investors focused on final demand, the broadest measure of spending by government, consumers and businesses, which more than doubled from 0.6 percent in the final quarter of 2010.

Economy Rebounding

A day later, a government report showed April retail sales advanced 1.1 percent from a month earlier, the biggest jump since November 2009 and almost three times more than the median forecast in a Bloomberg News survey of economists.

In the May 6 review, the RBA forecast growth of 4.25 percent this year. Consumer prices will rise 3.25 percent over the period and core inflation will reach 3 percent, it said.

Expectations for consumer-price gains declined for a fourth week, the longest stretch since December, government debt markets show. The gap between yields on five-year inflation- linked notes and similar-maturity bonds that aren’t indexed shrank to 2.98 percentage points on June 3 from 3.01 percentage points a week earlier, according to data compiled by Bloomberg.

The so-called breakeven rate shows investor estimates for annual inflation over the lifetime of the bonds. The RBA aims to keep inflation in a range of 2 percent to 3 percent on average.

RBA’s Pause

The central bank may also have cause to keep rates unchanged as global growth shows signs of weakening, including the economies of some of Australia’s biggest trading partners, and Europe’s debt crisis deepens.

China’s manufacturing expanded at the slowest pace in nine months in May, a survey of companies released last week showed. India’s growth in three months to March 31 was the weakest in five quarters, and Japan’s industrial production rose less than economists forecast in April. Those three countries accounted for 51 percent of Australia’s total exports so far this year.

Greece’s fiscal crisis worsened enough for Moody’s Investors Service last week to raise the probability of a default to 50 percent. Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said June 3 that the European Union will approve a new aid plan for Greece.

U.S. stocks fell last week, sending the Dow Jones Industrial Average to its longest stretch of losses since 2004, after Labor Department figures showed payrolls rosed 54,000 in May, less than the 165,000 median forecast in a Bloomberg News survey, while the jobless rate climbed to 9.1 percent.

Europe Concerns

“Australian fixed income looks to have been the beneficiary of heightened European concerns and increased uncertainty over the U.S. outlook,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at RBC Capital Markets in Sydney.

The yield on the Australian government’s benchmark 10-year note advanced to 5.234 percent on June 3 from 5.230 percent on May 27, snapping the longest stretch of declines since 2008. The premium over the rate on similar-maturity Treasuries widened to 225 basis points, or 2.25 percentage point, from this year’s low of 197 on March 3.

A May 31 central bank report showed loans provided by Australian banks and finance companies stagnated in April. Australian employers shed 22,100 workers in April, bringing to 26,300 the number of net new jobs created in first four months of 2011, the weakest for that period since 1999.

Australia’s minimum wage was increased 3.4 percent to A$589.30 a week, the national workplace relations tribunal said June 3. The wage price index rose 3.8 percent in the first quarter from a year earlier, the government reported May 18.

Queensland’s Exports

Stevens has held rates for five meetings to allow the economy in Queensland to recover from floods in January that Prime Minister Julia Gillard called the nation’s most expensive natural disaster.

Further weighing on consumers, the government said last month it will end 23 years of spending growth to help ease inflation pressure and support the return to a budget surplus.

The gap between yields on corporate notes and sovereign debt widened one basis point last week to 162, paring this year’s decline in the spread to 35 basis points, Bank of America Merrill Lynch indexes show.

In a statement after its May 3 policy decision, the RBA said it left rates unchanged as households continue to show caution in spending and borrowing, and are saving more.

Last week’s GDP report showed Australia’s household savings ratio climbed to 11.5 percent in the three months through March from 9.7 percent in the previous quarter, the highest level since 2009.

--With assistance from Candice Zachariahs and Daniel Petrie in Sydney. Editors: Brendan Murray, Garfield Reynolds

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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U.S. Stocks Fall a Third Week on Europe Concern, Forecast Cuts

May 21, 2011, 12:45 AM EDT By Whitney Kisling

May 21 (Bloomberg) -- U.S. stocks declined for a third straight week, the longest slump since August, as investors grew more concerned that Greece will default on its debt and reduced earnings forecasts undermined confidence in the economy.

Staples Inc. and Gap Inc. led losses in the Standard & Poor’s 500 Index after cutting their profit projections, while Hewlett-Packard Co. plunged 11 percent as it reduced its sales forecast. NYSE Euronext sank 13 percent after Nasdaq OMX Group Inc. said it was dropping a takeover bid for the operator of the New York Stock Exchange. Newfield Exploration Co. and El Paso Corp. led energy stocks to the biggest gain among 10 groups.

The S&P 500 lost 0.3 percent to 1,333.27 this week. The index has fallen every week in May after reaching an almost three-year high at the end of April. The Dow Jones Industrial Average fell 83.71 points, or 0.7 percent, to 12,512.04.

“People are realizing that not only the U.S. but the global economy still faces some issues,” said Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania. “You’ve still got problems particularly in Greece that aren’t going to go away soon. The market had gotten a little ahead of itself.”

While the S&P 500 is up 6 percent so far in 2011, the benchmark index for U.S. equities has lost 2.2 percent this month. The S&P 500 has only fallen one month so far this year, slipping 0.1 percent in March amid concern that Japan’s earthquake and tsunami would curb global demand.

Staples Plunges

Staples slipped the most in the S&P 500, losing 19 percent $16.37. The office-supply retailer forecast 2011 earnings wouldn’t exceed analysts’ average estimate, according to data compiled by Bloomberg.

Gap, the largest U.S. apparel chain, dropped 17 percent to $19.22 and had the worst daily decline in almost a decade yesterday. The company cut its full-year profit forecast by 22 percent as costs to make clothes rose faster than expected.

NYSE Euronext plunged as smaller competitors Nasdaq OMX and IntercontinentalExchange Inc. withdrew their bid for the New York-based company after the U.S. Department of Justice threatened a lawsuit. The shares lost 13 percent to $35.76.

S&P 500 technology companies slid the most among 10 groups this week, dropping 1.5 percent for the third straight week of losses. Hewlett-Packard, the biggest personal-computer maker, fell the most among technology shares after it cut a billion dollars from its sales forecast for 2011 and missed analysts’ profit projections. The shares slid 11 percent to $35.98.

Chip-Share Downgrade

KLA-Tencor Corp. lost 7.3 percent to $41.20. The semiconductor company, along with Intel Corp. and Applied Materials Inc., was downgraded by Goldman Sachs Group Inc., which cited increased competition from tablet computers and excess supply.

Energy shares in the S&P 500 rose 0.9 percent as a group this week, after losing 8.3 percent in the first two weeks of May. Oil climbed above $100 a barrel on May 18 after an Energy Department report showed an unexpected drop in U.S. inventories as refineries bolstered operating rates and imports declined.

Crude gained again on May 20 after the American Petroleum Institute said fuel consumption increased in April.

Newfield Exploration, an oil and gas producer which operates in the Gulf of Mexico, onshore U.S., Malaysia and China, advanced 6.9 percent. El Paso, which operates natural-gas pipelines, rose 6.4 percent.

Salesforce Rallies

Salesforce.com Inc., the largest supplier of customer- management software, advanced 8.7 percent to $146.61 for the best weekly gain since November. The company, which sells cloud- computing applications that companies rent over the Web rather than install on their computers, forecast fiscal second-quarter sales and profit that topped estimates as the company added 5,400 customers in last quarter.

The S&P 500 started the week lower on May 16 as concern about Europe’s debt crisis was heightened after Greece sought additional bailout funds. European finance chiefs endorsed a 78 billion-euro ($111 billion) bailout for Portugal. Authorities stepped up the pressure on Greece to sell assets and deepen spending cuts to win an increase of its 110 billion-euro aid package and more time to repay the loans.

“Some degree of caution might be in order in the near- term, while we wait for greater clarity on a series of risks in the weeks ahead,” said David Joy, the Boston-based chief market strategist at Ameriprise Financial Inc., which oversees $693 billion in assets. “Recent evidence suggests a bit of softness in the U.S. economy.”

Economic Signals

While a government report showed that fewer Americans than estimated filed applications for unemployment benefits during the previous week, other data showed manufacturing in the New York and Philadelphia regions expanded at a slower-than-forecast pace. Housing starts and existing home sales also unexpectedly decreased.

The S&P 500 was poised to gain for the week after the Federal Reserve signaled continued low interest rates on May 18. Talks about an exit strategy from the record stimulus measures don’t mean monetary tightening “would necessarily begin soon,” according to the Fed’s April policy meeting records, released last week. Gap’s forecast and Fitch’s downgrade of Greece brought the index lower for the week yesterday.

The S&P 500 has climbed 27 percent since Fed Chairman Ben S. Bernanke signaled in August that he would buy more bonds to stimulate the economy. The Fed’s second program of quantitative easing, or QE2, which was officially announced in November, ends in June.

Joy said the approaching end of the Fed’s quantitative easing “raises uncertainty” about its role in the S&P 500’s direction.

--With assistance from Nikolaj Gammeltoft in New York. Editors: Michael Regan, Stephen Kleege

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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