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NEW YORK (Reuters) – Global stocks closed their worst quarter in nearly three years on Friday on nagging concerns about the world economy and the lack of a credible solution to Europe‘s debt crisis.
The euro and most commodity prices also fell as investors’ search for safety drove up U.S. government bonds and the dollar.
Adding to a string of global data that has crushed growth-related assets in the past three months, China’s manufacturing sector contracted for a third straight month in September while German retail sales slid at their sharpest pace in more than four years.
An unexpected rise in euro-zone inflation for September also moderated talk that the European Central Bank would cut interest rates. Still, the euro fell sharply to close its worst quarter against the U.S. dollar since mid 2010.
“The combination of sovereign debt crisis, a slowing economy and really what appears to be ineffective leadership in Europe has led to this decline, and we expect that to continue to play out in the fourth quarter,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
U.S. stocks fell, closing their worst quarter since the collapse of Lehman Brothers in late 2008 with sharp declines.
The MSCI All Country World Index slumped 18 percent for the quarter, with a drop of 2.3 percent on Friday. It lost roughly $5.29 trillion in market capitalization in the quarter, according to Thomson Reuters Datastream.
On Friday, the Dow Jones industrial average dropped 240.60 points, or 2.16 percent, to 10,913.38. The SP 500 fell 28.98 points, or 2.50 percent, to 1,131.42. The Nasdaq Composite slid 65.36 points, or 2.63 percent, to 2,415.40.
U.S. crude oil prices fell 4.1 percent on Friday, down more than 17 percent in the quarter. Copper, a key industrial metal that is a proxy for growth expectations, was down 25.8 percent over the last three months.
“There is a lot of fear that GDP growth is going to slow down, or it’s not going to be as fast as consensus estimates assume,” said Adam Krejcik, an analyst at Roth Capital in Newport Beach, California. “Generally speaking, there is a lot of fear out there, just a crisis of confidence.”
Mining stocks were among the worst performers, hit by the news of slowing growth in China, the world’s second-largest economy and an engine of global growth.
EURO OFF, BONDS FLY AMID THE GLOOM
The euro slipped versus the U.S. dollar and posted its biggest monthly drop in nearly a year, weighed down by the lack of a visible solution to the euro zone’s deepening debt troubles.
The single currency fell to a low of $1.3384 and was last at $1.3392, down 1.5 percent for the day. For the month of September, the euro lost 6.6 percent, its weakest performance since November 2010.
In contrast, a gauge of the U.S. dollar against major currencies rose 0.9 percent.
A boost to the euro after Germany’s parliament approved new powers for the euro-zone bailout fund proved fleeting after the data on the slump in German retail sales in August.
Leaders in Germany’s ruling coalition said they opposed moves to increase states’ liabilities to the bailout fund, keeping alive concerns that Europe will not be able to do enough to prevent the crisis from spreading.
The deepening economic gloom has prompted investors to slash bets on risky assets for most of the quarter that ended Friday.
The retreat continued to push safe-haven U.S. Treasury debt prices higher on Friday, with longer-maturity bonds posting their best quarter since the final period of 2008.
U.S. Treasuries held steady at higher price levels after the New York Fed announced the initial schedule for its $400 billion bond program, known as Operation Twist.
The benchmark 10-year note was last up 25/32 in price to yield 1.9172 percent, down from 2.00 percent late on Thursday.
The 30-year bond jumped 3-3/32 in price to yield 2.917 percent, down from 3.06 percent.
(Additional reporting by Karen Brettell, Wanfeng Zhou and Edward Krudy; Editing by Leslie Adler, Jan Paschal and Dan Grebler)
NEW YORK (Reuters) – Investors are worried U.S. earnings growth may finally fall back to earth as turmoil in Europe and signs of a less robust Chinese economy hurt foreign support.
The euro zone’s debt crisis and weakness in China have fueled investor concern that the global economy could tip back into recession, possibly dampening U.S. earnings growth at a time when the U.S. economy is still struggling to gain ground.
Overseas sales have helped U.S. companies beat earnings expectations in the last couple of years, with foreign sales totaling 30 percent on average for Standard Poor’s 500 companies.
“If the euro region is crumbling, that’s going to have a tremendous negative impact” on companies like McDonald’s, said Todd Schoenberger, managing director at LandColt Trading in Wilmington, Delaware.
“I’m not expecting a big earnings quarter,” he said. “We’ve been getting the clues already.”
The most recent company to trouble investors about the earnings outlook is Ingersoll Rand Plc, whose shares tumbled 12.1 percent to $28.09 on Friday after the industrial conglomerate cut its third-quarter and full-year earnings forecast to below market estimates.
Investor pessimism is already high.
The SP 500 finished the quarter with its worst performance since 2008, and many strategists have slashed their forecasts for year-end.
The SP 500 dropped 14.3 percent in the third quarter, losing about $1.7 trillion in market capitalization.
A disappointing third-quarter earnings period, which begins the second week of October, could only trigger more losses, analysts said. Stronger-than-expected earnings helped stocks claw back fro 12-year lows in 2009.
Next week, investors also will be bracing for data on the U.S. job market, among the weakest parts of the economy. The government’s September employment report is due Friday, while U.S. manufacturing data from the Institute for Supply Management is due Monday. The ISM services-sector index is set for release on Wednesday.
CURRENCY CUSHION MAY BE THINNER
Companies reporting earnings have benefited for the last decade from weakness in the dollar, which helped overseas revenue figures.
With the euro down 7.4 percent this quarter, the biggest quarterly loss by percentage since mid-2010, companies could lose some of that currency cushion.
“I think you’ll see a lot of companies blaming problems on Europe,” said Justin Walters, co-founder of Bespoke Investment Group in Harrison, New York.
Walters said excluding companies that report no international sales, the average percentage of overseas revenue for the SP 500 is 41 percent.
The euro-zone debt crisis has investors worried about a repeat of the 2008 financial crisis.
In China, which has been a major engine of growth for the global economy, data has shown some weakness. On Friday, figures showed the country’s manufacturing shrank for the third month in a row and had the longest contractional streak since 2009.
Analysts have slowly been reducing earnings forecasts for the quarter.
Third-quarter earnings are expected to have risen 13.3 percent from a year ago, according to Thomson Reuters data. The forecast was for 17 percent growth on July 1.
“If there’s a very drastic downturn in the European economic zone, that portion of U.S. earnings will be impacted,” said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.
But she and other strategists are optimistic that the earnings period will not disappoint, and could even present a buying opportunity.
“U.S. multinationals don’t necessarily derive all of their additional earnings (from Europe), and in China, data seems to be showing a slowdown but not in hard-landing territory,” Trunow said.
Other strategists said the dramatic cost-cutting that U.S. companies started in the 2008 financial crisis will help to keep bottom-line earnings numbers relatively healthy.
“In our view, corporate America has learned to make money in this environment,” said Hank Smith, chief investment officer at Haverford Trust Co. in Philadelphia.
(Reporting by Caroline Valetkevitch; Editing by Jan Paschal)
