The Fall of U.S. Stocks and The Rise of Dollar

U.S. Stocks Drop as Dollar's Plunge Boosts Commodities to Bonds

Stocks fell from Tokyo to New York as central banks showed little will to step up support for flagging economies amid disappointing corporate results. The dollar tumbled the most in six weeks.

While U.S. equities briefly overcame early losses sparked by the Bank of Japan’s surprise decision to refrain from adding to stimulus, the Dow Jones Industrial Average ended Thursday down the most since Feb. 23 as investor Carl Icahn said he sold his stake in Apple Inc. The greenback’s decline sparked gains in commodities, while haven assets jumped, driven by the yen’s steepest advance since 2010. Treasuries extended gains.

“I’ve certainly been surprised by the ability of the market to hang in there with as many mediocre earnings as we’ve seen so far and I think it was too many,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “As a bull, you don’t want to see a late-day selloff after some good morning action. It’s a market that’s just a little worn out.”

Icahn’s Apple divestment unnerved investors who had looked past disappointing earnings results from technology giants including Microsoft Corp. to Alphabet Inc. to focus on the positive impact of a weaker dollar and stabilization in oil prices. The BOJ’s decision to give its already unprecedented stimulus more time to work before adding to it echoed a move by the European Central Bank and came after the Federal Reserve struck a more hawkish tone. Evidence of slowing U.S. economic growth also unsettled markets.

“You had a slightly less dovish Fed yesterday, and a less dovish BOJ today, and that got people wondering whether they really wanted to be rallying that much,” said Matt Maley, an equity strategist at Miller Tabak & Co. LLC in New York. “When the news on Icahn’s Apple sale came out, that really got people worried. It’s hard for the stock market to rally to new highs when Apple isn’t moving higher.”

Stocks

The Standard & Poor’s 500 Index fell 0.9 percent as of 4 p.m. in New York, its biggest one-day slide since April 7. The gauge is still up 0.8 percent in April, on track for its first back-to-back monthly increases since November. The Dow Average fell 211 points to a three-week low.

Amazon.com Inc. rallied on better-than-estimated results, surging 13 percent in after-hours trading. While Apple sank 3.1 percent in ordinary trading Thursday, leading technology shares lower, Facebook Inc. surged to a record after its earnings topped analysts’ estimates.

St. Jude Medical Inc. soared after Abbott Laboratories agreed to buy the company in a deal valued at $25 billion. DreamWorks Animation SKG Inc. rallied after Comcast Corp. said it would buy the studio for $3.8 billion. 

While investors are fretting about visible threats to stock prices, the bull market that began seven years ago just became the second-longest ever. Laszlo Birinyi of Birinyi Associates Inc. still sees more room for gains.

Currencies

The dollar reached its lowest level since June against a basket of 10 major currencies, with weaker-than-forecast economic growth supporting the Fed’s decision to keep monitoring data before any tightening monetary policy any further.

The yen jumped 3 percent to 108.11 per dollar, its biggest increase since August when China unexpectedly devalued the yuan. Japan’s central bank left three of its key easing tools unchanged — the 80 trillion yen target for expanding the monetary base, the 0.1 percent negative rate on a portion of the cash banks park at the BOJ, and a program to buy riskier assets including stocks.

New Zealand’s currency surged 1.7 percent, the most since March 29 after central bank Governor Graeme Wheeler defied some market speculation he would cut already record-low interest rates.

Bonds

Treasuries trend upward after data showed a measure of U.S. inflation climbed in the first quarter by the most since 2012. Benchmark Treasury 10-year note yields slipped three basis points, or 0.03 percentage point, to 1.83 percent, after touching 1.81 percent, the lowest level since April 20. 

Germany’s 10-year bund yields fell three basis points to 0.26 percent while equivalent Japanese bond yields declined three basis points to minus 0.091 percent.

Nearly 10 months after Governor Alejandro Garcia Padilla said the commonwealth was unable to repay all its obligations, Puerto Rico has failed to reach an accord on a broad restructuring deal presented to bondholders.

Commodities

West Texas Intermediate crude rose above $46 a barrel after jumping 6.3 percent over the previous two sessions. U.S. production fell for a seventh week to the lowest level since October 2014, while the Interfax news agency said Russia may take part in the Organization of Petroleum Exporting Countries’ scheduled June meeting.

“The fact we have a supply-side response coming through is one of the positives for the market,” Michael McCarthy, chief strategist at CMC Markets in Sydney, said by phone. “The disaster scenario that was talked about in the first quarter has now been pulled back. It’s become pretty clear that prices are not going to $10 to $20 a barrel in the near future.”

Gold futures climbed 0.7 percent to $1,258.50 an ounce. It’s up for a fourth day, the longest run in more than two months. Copper continued its longest slump in three weeks as traders debated whether Chinese manufacturing data will validate forecasts for better demand from the largest metals consumer.

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