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Yellen: Stock Valutations Are Quite High Now
Aspire, Thought Leaders | 08 May 2015

U.S. stocks tumbled with the dollar after data on jobs and productivity added to concern economic growth is not robust enough to withstand higher interest rates. Oil rose.

The Standard & Poor’s 500 Index fell 0.4 percent at 10:17 a.m. in New York, extending declines after Federal Reserve Chair Janet Yellen said equity market valuations are quite high. The Bloomberg Dollar Spot Index lost 1 percent. The yield on 10-year Treasuries continued to climb with European bond rates in a global bond rout that has erased more than $430 billion in value since the start of last week. Oil extended gains above $62 a barrel on prospects the supply glut is easing.

Productivity in the U.S. fell in the first quarter, while a private payrolls report showed companies in April added the fewest number of workers in more than a year. Economic data have been missing estimates by the most in more than six years, stoking concerns growth is slowing as the Fed considers raising borrowing costs. The S&P 500 trades at 17.6 times forecast earnings of its members, above the five-year average multiple of 14.5.

“We’ve still got more confidence in U.S. growth than anywhere else,” said William Low, the Edinburgh-based head of global equities at Nikko Asset Management. “People just need to adjust their expectations — it won’t be a roaring recovery. Most markets have lost some momentum in the past few weeks. After a period of underperformance, U.S. stocks could start to look attractive for investors again.”

Jobs Watch

The dollar dropped against most of its 16 major counterparts, extending losses that pushed the Bloomberg dollar gauge to its steepest slide since 2011 in April, as market tension rises before Friday’s government jobs report.

Policy makers are monitoring labor market progress as they debate the timing of their first interest rate increase since 2006. While data showed the economy expanded at a 0.2 percent annualized rate in the first quarter, the Fed called the weakness “transitory,” opening the door for a possible rate increase this year.
The S&P 500 has fallen 1.3 percent from an April 24 record amid a retreat in risk appetite. Some of the year’s most popular market bets backfired last month, as the dollar and European bonds slid, while energy prices rebounded.

Stocks have declined even as quarterly earnings come in better than expected. About 72 percent of the 408 S&P 500 companies that have reported earnings this season have beaten analysts’ projections.

The Stoxx Europe 600 was little changed as investors assessed corporate results and watched for developments in Greek debt talks. Shares pared an advance after the U.S. data.

Tumbling Greek shares led European stocks to their lowest level in two months on Tuesday on concern that bailout negotiations will fail to secure funding in time to prevent the nation defaulting.

Emerging Markets

The MSCI Emerging Markets Index dropped 0.8 percent. Russia’s ruble and the Malaysian ringgit strengthened as gains crude prices buoyed earnings prospects for the oil-exporting nations.

The Shanghai Composite slid 1.6 percent to a two-week low and the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slipped 0.6 percent.

The Bloomberg Commodity Index, a measure of 22 raw materials, added 0.3 percent for a third day of gains.

Raw-material prices have rebounded since reaching a 12-year low in March as crude rallied, the dollar fell and speculation increased that China may add to stimulus.

The Bloomberg commodities gauge has still plunged more than 50 percent from its record in 2008, after a decade-long bull market encouraged farmers, miners and oil producers to ramp up supplies.

Oil added as much as 2.8 percent in New York. Crude inventories at Cushing, Oklahoma, the delivery point for the U.S. benchmark grade and the nation’s biggest oil-storage hub, probably declined by 583,330 barrels last week, according to estimates compiled by Bloomberg before the U.S. Department of Energy releases the data later today.

Copper entered a bull market yesterday on signs that supplies are tightening just as speculation mounts that demand from China will rebound.

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