Investing

U.S. Stocks Retreat, Snapping S&P 500's Six-Day Advance


By Rita Nazareth

(Bloomberg)—U.S. stocks fell for the first time in seven days as declines in energy, financial and technology companies snuffed out an early gain triggered by reports showing home prices rose in October and consumer confidence increased.

Chesapeake Energy Corp. (CHK) and Range Resources Corp. dropped at least 2.6 percent to lead declines in 34 of 39 energy companies in the Standard & Poor's 500 Index as a stronger dollar left oil little changed after four straight gains. Apple Inc. (AAPL) slipped 1.2 percent after climbing to a record $211.61 yesterday. Bank of America Corp. (BAC) posted the biggest drop in the Dow Jones Industrial Average after Moody's Investors Service (MCO) said U.S. credit-card charge-offs increased.

The S&P 500 slipped 0.1 percent to 1,126.2 at 4:06 p.m. in New York after climbing as much as 0.2 percent earlier. The Dow lost 1.67 points, or less than 0.1 percent, to 10,545.41. The Dollar Index, which tracks the currency against six major U.S. trading partners, climbed 0.3 percent to 77.877.

"The dollar is spiking and it has had an inverse correlation with stocks," said Walter Todd, who manages $775 million as co-chief investment officer at Greenwood Capital Associates LLC in Greenwood, South Carolina. "We're sitting near year-highs for stocks. I wouldn't be surprised to see the S&P 500 trade flat into the end of the year."

U.S. stocks advanced yesterday, sending the S&P 500 up for a sixth straight day and above its highest close since October 2008, as a rally in commodity producers offset speculation that interest rates will increase. The gauge is up 25 percent this year, poised for the largest annual gain since 2003, and has trimmed its decline over the past decade to 23 percent.

Rebound Since March The S&P 500 has rebounded 66 percent from a 12-year low in March after governments around the world enacted stimulus measures to end the recession. The Dollar Index has slumped 13 percent since hitting a three-year high on March 5.

Investors Barton Biggs and Marc Faber, who recommended buying stocks in March when investors were dumping them, say U.S. equities may keep rising together with the dollar as economies improve around the world.

Energy shares had the biggest decline in the S&P 500 among 10 industries, dropping 0.7 percent. Crude oil rose as much as 0.8 percent in early trading before erasing most of the gain as the dollar strengthened, reducing the appeal of commodities as an alternative investment. Crude for February delivery rose 10 cents to $78.87 a barrel before retreating in electronic trading after the close of the New York Mercantile Exchange.

Chesapeake Energy fell 3.1 percent to $26.73. Range Resources lost 2.6 percent to $51.08.

Credit-Card Charge-Offs Bank of America, the largest U.S. lender by assets, slid 1.1 percent to $15.12. American Express Co. (AXP), the biggest U.S. credit-card issuer by purchases, fell 0.4 percent to $40.88. Moody's said November charge-offs on U.S. credit cards rose about half a percentage point to 10.56 percent.

Potash Corp. (POT) of Saskatchewan Inc. lost 2 percent to $109.50. The largest fertilizer maker declined after analyst Mark Gulley of Soleil Securities told clients it had cuts its list price for granular potash by 14 percent. Renaissance Capital said potash prices may fall next year, approaching production costs of European and North American producers, if a Chinese supply contract signed by OAO Uralkali fails to unlock global demand.

Mosaic Co. (MOS), North America's second-largest fertilizer maker, fell 1.9 percent to $59.68.

The S&P 500 rose as much as 0.2 percent in morning trading after home price and consumer confidence data signaled the economy is recovering.

Housing, Confidence Data Improve The S&P/Case-Shiller 20-city home-price index increased 0.4 percent from the prior month on a seasonally adjusted basis, after a 0.2 percent rise in September, the group said today in New York. The gauge was down 7.3 percent from October 2008, the smallest year-over-year decline since October 2007. The median forecast of economists surveyed by Bloomberg News was for a 7.2 percent drop.

The Conference Board's consumer confidence index increased to 52.9, in line with the median forecast of economists surveyed by Bloomberg News, from 50.6 in November, the New York-based research group said.

Retail Sales U.S. retail sales climbed during Christmas week as shoppers sought last-minute gifts, a trade group said. Sales at stores open at least a year rose 2.3 percent in the week ended Dec. 26 from a year ago, the International Council of Shopping Centers and Goldman Sachs Group Inc. (GS) said today.

"The most recent figures point to an economy that is improving," said Mark Bronzo, a money manager in Irvington, New York, at Security Global Investors, which oversees $21 billion. "We've been watching a continued stabilization in housing prices. If prices stabilize on that front, in the long-run it will help consumers feel a little more comfortable with spending. Most investors are expecting an economic recovery and better earnings growth should help the stock market."

The 50 percent recovery in the S&P 500 from its bear-market bottom means gains of almost 9 percent next year, according to analysts who follow the Fibonacci system of forecasting stock prices. The benchmark index for U.S. stocks exceeded 1,120.84 on Dec. 24, recovering half its losses from the 17-month decline that ended in March.

'Up Year' "Our forecasts are for an up year in the U.S.," Jeffrey Palma, the head of global equity strategy for UBS AG (UBS), said in a Bloomberg Television interview. "From a sector perspective, we like technology, consumer staples and energy. A little bit of a mix from a cyclical and defensive standpoint, but all areas that we think are poised to do pretty well."

According to hedge fund manager Eric Sprott, the S&P 500 will collapse below its March lows as an expected rebound in economic growth fails to materialize.

The Toronto-based money manager, whose Sprott Hedge Fund returned 496 percent over the past nine years while the S&P 500 lost 32 percent, said the index's 67 percent rally since March reflects investors misinterpreting economic data. He's predicting the gauge will fall 40 percent to below 676.53, the 12-year low reached on March 9.

"We're in a bear market that will last 15 or 20 years, and we've had nine of them," Sprott, chief executive officer of Sprott Asset Management LP, which oversees C$4.3 billion ($4.09 billion), said in an interview Dec. 18.

To contact the reporter on this story: Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net.

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