Stock selloff eases as investors await Yellen

The S&P 500 fell 0.3% after rebounding from a loss of 1.5 percent earlier.
The selloff in risk assets from equities to raw materials eased as investors turned to a speech from Federal Reserve Chair Janet Yellen for clues on the timing and pace of monetary policy.

The Standard & Poor’s 500 Index closed lower after almost erasing a rout of more than 1 percent, as energy shares rebounded with the price of crude. Emerging-market equities and currencies trimmed steep declines as the dollar weakened. Copper advanced on speculation demand will get a boost from the U.S. housing market.

The S&P 500 has fallen in five of the six sessions since the Fed held interest rates near zero on concern that financial- market turmoil and the slowdown in China may harm economies from Europe to America. Yellen delivers a speech after U.S. markets close, with investors desperate for guidance on whether she deems the American economy robust enough to withstand higher rates this year.

“We’re seeing a defensively-led market today,” Todd Lowenstein, who helps manage $16 billion at in Los Angeles HighMark Capital Management Inc., said by phone. “I think there are some bargains emerging in the midst of this indiscriminate selloff. A lot of the daily trading is dominated by algorithms and quants and these dislocations can occur.”

The rebound in U.S. stocks coincided with the release of research from a JPMorgan Chase & Co. strategist arguing that the “price insensitive” program traders — which contributed to last month’s losses in U.S. stocks — may turn into buyers.

Earlier, declines in European and emerging-market shares sent the MSCI All-Country World Index through its Aug. 25 nadir on signs that China’s slowdown is hampering global growth. Data showed U.S. orders for business equipment stalled last month, while central banks in Thailand and Norway unexpectedly cut interest rates in an in effort to stimulate growth sapped in part by falling energy prices.

Stocks

The S&P 500 fell 0.3 percent at 4 p.m. in New York, rebounding from a loss of 1.5 percent earlier. The gauge has dropped 3.2 percent since the Fed’s decision on Sept. 17 and is 3.5 percent above its low during last month’s selloff.

Program traders may deliver “$10 billion in purchases over the next few days,” Marko Kolanovic said in a note to clients today. He added that if indexes add 2 to 3 percent in that time, additional technical buying may occur. Kolanovic’s notes moved markets on Aug. 27 and Sept. 3, in both cases sparking declines after he warned of quant-fomented crashes.

“If someone’s the hot hand people are going to start following them and if whenever they’ve said something markets move then you have to watch that,” said Steve Bombardiere, an equity trader at Conifer Securities LLC in New York. “We’re in an earnings void for sure, there’s not a lot of news and everybody’s sitting on Yellen tonight.”

The Fed chair will deliver a speech on “Inflation Dynamics and Monetary Policy,” scheduled for 5 p.m. in Amherst, Massachusetts. Fed fund futures show traders now see a less than 50 percent chance of a rate increase in January at the earliest, compared with odds calling for a liftoff by year-end before the decision.

Automakers led declines as the Stoxx Europe 600 Index tumbled 2.1 percent to its lowest level since January. Shares briefly rose as much as 0.3 percent after a report showed German business confidence unexpectedly improved in September.

Bonds

Treasury 10-year note yields fell two basis points to 2.12 percent. They’re down from 2.30 percent on Sept. 16, the day before the Fed’s interest-rate decision inspired a bond-market rally.

The bond market’s inflation outlook for the next 10 years touched the lowest since May 2009, raising questions about the Fed’s ability to increase interest rates this year.

High-yield issuance ground to a halt amid continuing investor concern about the weakening commodities market. The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, rose to its highest in a month.

Emerging Markets

The MSCI Emerging Markets Index dropped 0.3 percent, paring a loss of more than 1 percent. Its fallen four straight days and is down 4.9 percent this week. Price swings in the index widened to the most in four years in a sign the Fed’s decision to delay an interest-rate increase is leaving investors more nervous instead of calming them.

Stock markets in Singapore, Malaysia and Indonesia as well as South Africa, Turkey and most countries in the Middle East were closed for holidays.

Currencies

The krone tumbled after Norway’s central bank cut interest rates to an all-time low and said it may reduce rates further. It weakened 2 percent to 8.46024 per dollar and depreciated 2.3 percent to 9.49668 per euro.

The Swiss franc, yen and the euro rallied as the Oslo-based central bank said it may need to ease monetary policy further. Bloomberg’s Dollar Spot Index fell from almost a six-week high.

A gauge of 20 developing-nation currencies has tumbled 1.9 percent since the Fed’s rate decision. Latin American currencies led by the Brazilian real fell to their lowest on record on Wednesday as they posted the steepest two-day decline in two years.

South Africa’s rand was little changed at 13.86 against the dollar, after earlier approaching a record 14.0682 reached on Aug. 24. The Turkish lira was also little changed after dropping to an all-time low of 3.0737.

Commodities

The Bloomberg Commodity Index edged higher as haven metals from gold to silver rallied. Bullion futures surged 1.9 percent to $1,152.70 an ounce, a four-week high, while silver added 1.6 percent.

Oil rose for the first time in three days, adding 1 percent to $44.91 a barrel in New York. Prices slipped earlier after government data Wednesday showed that U.S. refinery utilization slid 2.2 percentage points last week.

The commodity index has fallen 1.8 percent since the Fed’s meeting last week, revisiting levels last seen in 1999, as West Texas Intermediate dropped 5.7 percent and the London Metal Exchange Index of metals touched a one-month low.

–With assistance from Paul Dobson and Stephen Kirkland in London and Daniel Kruger, Oliver Renick, Mark Shenk, Joe Deaux, Kate Garber and Anna-Louise Jackson in New York.

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