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U.S. Stock-Index Futures Drop Amid Portuguese Financial Stress

July 10 (Bloomberg) -- U.S. stock-index futures fell, indicating the Standard & Poor’s 500 Index will resume a selloff that began earlier this week, as signs of financial stress in Portugal fueled concern about European sovereign debt.

Pandora Media Inc. and Facebook Inc., which trade at more than 85 times reported earnings, slid at least 1.9 percent amid concern valuations in Internet and small-cap stocks have risen too far too fast. Bank of America Corp. and JPMorgan Chase & Co. retreated more than 1 percent to pace losses among financial firms.

Futures on the Standard & Poor’s 500 Index expiring in September lost 0.8 percent to 1,950.60 at 8:34 a.m. in New York. Dow Jones Industrial Average contracts slid 143 points, or 0.9 percent, to 16,770 today, while Russell 2000 Mini Index futures dropped 2 percent.

European stocks and Portuguese bonds tumbled with investor concern deepening over missed debt payments by a company linked to the Iberian nation’s second-largest lender. Portugal’s central bank said Banco Espirito Santo SA is protected after its parent missed the payments. U.S. Treasuries rallied.

American equity gauges rebounded yesterday from a two-day selloff as optimism over corporate earnings and jobs growth outweighed Fed concern that investors may be growing complacent about risk.

U.S. benchmark indexes ended last week at all-time highs, with the Dow topping 17,000 for the first time, as the June payrolls report showed job growth blew past expectations and the unemployment rate fell to the lowest level since before the financial crisis peaked six years ago.

Jobless Claims

A report today showed fewer Americans than forecast filed applications for unemployment benefits last week, a sign the job market continues to strengthen.

Minutes of the Fed’s June meeting showed officials have agreed they’ll end their asset-purchase program in October if the economy holds up. At the same time, the policy makers said the central bank should continue to support favorable financial conditions needed to sustain growth, according to the minutes.

The Russell 2000 Index had on July 7 its biggest one-day slide since April, while the Dow Jones Internet Index sank 4.6 percent during the first two days of the week, as investors resumed selling the biggest winners during the five-year bull market.

The selloff this week came after the Russell 2000 had recovered nearly all its losses from a two-month slide to come within a point of an all-time high. Gauges of Internet and biotechnology companies also had climbed back from their lows for the year, retracing more than half of their earlier losses.

Earnings Preview

Small-cap and Internet shares were the biggest victims of the market selloff earlier this year, amid concern valuations advanced too far. The Nasdaq Composite Index trades at 35 times reported earnings, about double that of the S&P 500.

More than 140 companies in the S&P 500, including Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs and Johnson & Johnson, will report quarterly results between now and July 23, according to data compiled by Bloomberg.

Profit at S&P 500 companies probably rose 5 percent in the three months through June, while sales gained 3 percent, estimates show. The forecasts have decreased from the start of April, when analysts predicted a 7.3 percent jump in earnings and 3.7 percent sales increase.

The Chicago Board Options Exchange Volatility Index finished last week at a seven-year low before rallying 16 percent during the first two days of the week, the biggest surge since April. The gauge known as the VIX slipped 2.8 percent to 11.65 yesterday.

The S&P 500 has not had a drop of 10 percent in more than two years. The gauge trades at a valuation of 18 times reported earnings, the highest since 2011 when it was in the middle of a 19 percent slide, its biggest during the current five-year bull market.

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