Bloomberg News

U.S. Stocks Tumble, Capping S&P 500’s Worst Quarter Since 2008

October 01, 2011

Oct. 1 (Bloomberg) -- U.S. stocks fell this week, capping the worst quarterly loss for the Standard & Poor’s 500 Index since the end of 2008, as the sovereign debt crisis in Europe and fears of a global slowdown overshadowed improving economic reports in the U.S.

Alcoa Inc. and Intel Corp. lost more than 3.7 percent as economic reports from China and Germany fueled investor concerns the world economy may contract. Micron Technology Inc. slid 24 percent after reporting an unexpected loss, while Advanced Micro Devices Inc. cut its sales forecast, sending the shares down 18 percent. Genworth Financial Inc. rallied 13 percent after Germany approved an expansion of a European bailout fund.

The Standard & Poor’s 500 Index lost 0.4 percent to 1,131.42, dropping for a second straight week after a 2.5 percent drop on the final day erased earlier advances. The Dow Jones Industrial Average rose 141.9 points, or 1.3 percent, to 10,913.38, after declining 6.4 percent the previous week.

“It’s been a horrific quarter, and investors are feeling bruised and battered across the board,” Alex Tedder, senior portfolio manager for American Century Investments in New York, who manages about $7 billion in global stocks, said in a telephone interview. “We’re coming from a background that is extremely depressed and extremely uncertain with the big question mark over growth that we have globally.”

Quarterly Loss

The week’s decline brought the S&P 500 to a quarterly loss of 14 percent, the worst drop since the three months ending December 2008, when the index lost 23 percent amid its worst plunge since the Great Depression. The S&P 500 has declined in nine out 13 weeks in the quarter. For the year, the S&P 500 is down 10 percent. The Dow dropped 12 percent for the quarter, and has lost 5.7 percent for the year so far.

Investors dumped equities in the third quarter as concern increased that Europe’s debt crisis will trigger a global recession and the Federal Reserve said there are “significant downside risks” to the U.S. economy. The S&P 500 slumped as much as 18 percent from its high in April, as European finance chiefs clashed over how to assist Greece and American lawmakers struggled to agree on raising the federal government’s debt limit. The benchmark equity index fell to a low of 1,119.46 on Aug. 8 after S&P cut the country’s credit rating.

Stocks advanced early in the week amid optimism that Europe would contain its debt crisis, as Germany’s lower house of parliament approved expanding the European bailout fund. Optimism faded amid growing concern policy makers were divided on how to solve the crisis, and as investors increasingly shifted their focus to the global economy.

China Manufacturing

A report this week showed a gauge of Chinese manufacturing shrank a third month, the longest contraction since 2009, as measures of new orders and export demand fell.

U.S. economic reports signaling improvements weren’t enough to keep stocks elevated. Labor Department figures showed applications for jobless claims fell to a lower number than was estimated by economists for the week ended Sept. 24. Orders for U.S. capital goods climbed in August by the most in three months, according to a Commerce Department report.

“We have gotten some incrementally good news here domestically, but that’s just still overshadowed by the issues in Europe,” Walter Todd, who helps manage $940 million at Greenwood Capital in Greenwood, South Carolina, said in a telephone interview. “There’s still a lot of unknowns.”

The VIX, as the Chicago Board Options Exchange Volatility Index is known, more than doubled this quarter to 42.96, data compiled by Bloomberg show. The gauge has averaged 20.45 over its 20-year history. It hasn’t doubled since 1998, and this quarter’s gain marked the biggest advance ever, the data show.

Raw Materials

Shares of raw-material companies led declines among 10 S&P 500 industries, losing 3.2 percent as a group for the week. Alcoa fell 5 percent to $9.57. The Morgan Stanley Cyclical Index of companies most-tied to economic growth lost 0.7 percent, ending the quarter with its worst drop since the end of 2008. Intel lost 3.7 percent to $21.34.

Fertilizer producer CF Industries Holdings Inc. slipped 15 percent to $123.39 as the U.S. government said pre-harvest corn inventories fell less than analysts forecast.

Micron Technology, the largest U.S. maker of computer- memory chips, reported an unexpected loss on weak demand for personal computers. The shares slid 24 percent to $5.04. Advanced Micro Devices lost 18 percent to $5.08.

Genworth gained 13 percent to $5.74 this week, while Berkshire Hathaway Inc. Class B shares added 7 percent to $71.04 as the company plans a stock buyback.

Netflix Tumbles

Alpha Natural Resources Inc. plunged 61 percent for the quarter, leading the S&P 500 lower, while Netflix Inc. dropped 57 percent. Netflix, the U.S. online and mail-order video service, tumbled after Amazon.com Inc. and Microsoft Corp. unveiled competing products and its own rebranding alienated customers and drove away investors.

For the quarter, utility stocks were the only group in the S&P 500 to advance, rising 0.4 percent. S&P 500 companies will start to report earnings for the third quarter this month, with Alcoa expected to post results Oct. 11. Analysts have lowered their estimates for 2011 profits by 0.9 percent to $99.23 a share since the start of September.

The S&P 500’s valuation measure based on reported earnings slipped 15 percent in the three months ending Sept. 30 to 12.4, the biggest quarterly contraction since June 2010, data compiled by Bloomberg show. The index is trading near its lowest point since March 2009, about the time the bull market that added as much as 102 percent began.

Trading Range

Since August, the benchmark gauge for U.S. equities has traded between about 1,100 and 1,300, as investors swayed between positive reports on the world’s largest economy and its corporations and speculation that the European debt crisis was growing. The index is forecast to reach 1,305 by the end of the year, according to strategists surveyed by Bloomberg.

“If nothing happens and if the crisis keeps spreading, I think we are on a path for global recession,” Thomas Lee, the New York-based chief U.S. equity strategist at JPMorgan Chase & Co. said in a Bloomberg Television interview Sept. 29. “But that’s kind of like saying someone took their hand off the steering wheel and no one is trying to grab it.”

--Editors: Jeff Sutherland, Joanna Ossinger

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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