The Standard & Poor’s 500 Index snapped a six-week gain amid concern European leaders may fail to tame the region’s debt crisis and as investors speculated whether central banks will provide further economic stimulus.
Equities rallied the final day on bets the Federal Reserve will act to boost growth. Dell Inc. (DELL:US) and Hewlett-Packard Co. (HPQ:US) slumped at least 7.8 percent for the week while discount chain Big Lots Inc. (BIG:US) plunged 21 percent on disappointing forecasts. Best Buy Co. (BBY:US), the retailer resisting a takeover attempt by its founder, sank 15 percent after profit trailed estimates. Apple Inc. (AAPL:US) rose 2.3 percent and set a record U.S. market value.
The S&P 500 declined 0.5 percent to 1,411.13, after the benchmark index for American equities briefly topped a four-year high during the week. The Dow Jones Industrial Average dropped 117.23 points, or 0.9 percent, to 13,157.97.
“There’s lack of data or news to push the market,” Wayne Lin, a money manager at Baltimore-based Legg Mason Inc., said in a phone interview. His firm oversees $636 billion. “The European situation is not resolved. The market wants the global economic environment to look weak enough to trigger central bank action, but not so weak that it’s going to threaten earnings.”
Stocks started the week lower as Germany’s Bundesbank stepped up criticism of the European Central Bank’s bond-buying program. German Chancellor Angela Merkel said Europe is in one of its deepest crises and while the path to a solution is “long and arduous,” the region will emerge stronger. In the U.S., Fed minutes showed many policy makers backed monetary easing and Chairman Ben S. Bernanke cited the ability to stimulate growth.
Concern about a global slowdown and a worsening of Europe’s debt has prevented the S&P 500 from rallying further, according to Peter Gunning at Russell Investments. On Aug. 21, the gauge briefly traded above a four-year high of 1,419.04 reached in April. The S&P 500 has rallied 2.3 percent in August and is on pace for its third straight monthly gain.
The index has struggled to break out of a narrow trading range as price swings have averaged 0.7 percent a day since Aug. 6, the smallest fluctuation over any comparable periods since January 2011, according to data compiled by Bloomberg.
“The market has run ahead of itself,” said Gunning, the global chief investment officer at Seattle-based Russell. His firm oversees $160 billion. “There are lots of dark clouds. It’s problematic to solve what Europe needs to solve given the political landscape. The U.S economy really hasn’t grown much.”
Attention now turns to Bernanke’s Aug. 31 speech in Jackson Hole, Wyoming, where he may clarify his thinking on the need for stimulus. While data showed sales of existing homes in the U.S. climbed from an eight-month low, a slump in demand for U.S. capital goods signaled a factory slowdown.
Companies which are most dependent on the pace of economic growth slumped during the week. The Morgan Stanley Cyclical Index dropped 1.2 percent, ending a five-week rally.
Technology shares, which comprise about 20 percent of the S&P 500, declined 0.6 percent amid disappointing outlooks at some of the industry’s largest companies.
Dell sank 7.9 percent to $11.26. The company’s strategy of using acquisitions (DELL:US) to add software, storage and networking equipment has been slow to offset declining sales of desktops and laptops, which account for half (DELL:US) of revenue. Consumers and businesses increasingly favor Apple’s iPad and other tablet computers over traditional machines.
Hewlett-Packard slid 9.9 percent, the most since February, to $17.58. The company posted a record quarterly loss and reported slumping sales for personal computers and services aimed at businesses, underscoring the turnaround challenge facing Chief Executive Officer Meg Whitman.
Big Lots plunged 21 percent, the most in the S&P 500, to $30.28. Slowing demand for lawn and garden items as well as furniture will force discounting and pressure profit margins for the rest of the year, Chief Executive Officer Steve Fishman said on a conference call with analysts.
Best Buy slipped 15 percent, the biggest decline since December, to $17.31. The company suspended providing an earnings forecast as sales of computers and televisions dropped. Best Buy also hired Hubert Joly as its chief executive officer to oversee a turnaround plan that entails shifting to smaller locations in a bid to fend off Amazon.com Inc. and Wal-Mart Stores Inc.
Boeing Co. (BA:US) fell 3.8 percent to $71.09. It lost an order for 35 Dreamliners with a list price of $8.5 billion in the biggest 787 cancellation yet as Qantas Airways Ltd. scrapped a contract after delivery delays and losses on international routes.
Groupon Inc. (GRPN:US) declined 6.5 percent to $4.44, a record low. Barclays Plc cut the price estimate and rating (GRPN:US) for the shares, citing the potential for increasing marketing costs and narrowing profit margins amid sales of discounted items.
Apple, the world’s most valuable company, rose 2.3 percent to $663.22. The company climbed to a record $665.15 on Aug. 20, giving it a market value of $623.5 billion, the highest ever for a U.S.-based company.
While the stock has jumped more than 80-fold in the past decade, earnings have gained more than 300-fold to $28.05 a share last fiscal year. Projections for further gains reflect optimism that Chief Executive Officer Tim Cook will use $117.2 billion in cash to keep growing in markets such as mobile devices, while pushing into new ones, including televisions.
“Apple has more fundamentals backing the company’s market cap,” said Shaw Wu, an analyst at Sterne Agee & Leach in San Francisco. “They have a lot of earnings, and lot of cash, which a lot of companies can’t really claim.”
Newmont Mining Corp. (NEM:US), the largest U.S. gold producer, increased 4.4 percent to $49.23. Freeport-McMoRan Copper & Gold Inc., the biggest publicly traded copper producer, gained 2.2 percent to $36.13. Gold capped its biggest weekly gain since January amid speculation that potential Fed stimulus measures would boost demand for the metal as an inflation hedge.
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