Bloomberg News

S&P 500 Caps Biggest Weekly Decline in 2 Months on Budget

December 29, 2012

U.S. stocks fell for the week, giving the Standard & Poor’s 500 Index its biggest drop in about two months, as investors watched budget talks in Washington.

A measure of energy shares dropped the most among the 10 main industry groups in the S&P 500 (SPX), retreating 3 percent. Coach Inc. (COH:US) and Amazon.com Inc. decreased more than 4.5 percent as retailers slumped after the Christmas holiday. Apple Inc. (AAPL:US), the world’s most valuable company, slipped 1.9 percent.

The S&P 500 slid 1.9 percent for the week to 1,402.43. The Dow Jones Industrial Average lost 252.73 points, or 1.9 percent, to 12,938.11. Both gauges ended the week at the lowest levels since Nov. 27.

“The discussions about a budget agreement have taken over everything,” said Richard Sichel, who oversees about $1.8 billion as chief investment officer at Philadelphia Trust Co. He spoke in a Dec. 28 phone interview. “We need to get that off the front page. It just brings negativity to the market.”

The S&P 500 has fallen 4.3 percent after reaching the highest level since 2007 in September as President Barack Obama’s re-election set up a budget showdown with the Republican-controlled House of Representatives. The benchmark gauge has risen 3.6 percent since its November low on bets a compromise will be reached to avoid more than $600 billion in automatic tax increases and spending cuts that are set to start taking effect in January. The so-called fiscal cliff could lead to an economic slowdown in early 2013, according to the Congressional Budget Office.

Unusual Session

The S&P 500 tumbled 1.1 percent on the final day of the week, its biggest drop since Nov. 14, amid concern Obama and Republicans were no closer to a compromise. Democratic and Republican U.S. Senate leaders said after markets closed for the week that they will try to come up with a budget plan by Dec. 30 that the chamber can pass.

Obama met on Dec. 28 with House Speaker John Boehner and Senate Minority Leader Mitch McConnell, both Republicans, and Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats. The Republican-led House called an unusual Sunday session for the evening of Dec. 30, though the leaders didn’t say what action they planned to take.

Stocks are up for the year amid global stimulus measures and better-than-estimated corporate earnings. The S&P 500 has risen 12 percent so far in 2012, driven by gains in financial shares and companies which rely on consumer discretionary spending. The S&P 500 is 4.3 percent above the average year-end estimate of Wall Street strategists in January of 1,344. On average, they predict the index to rise to 1,531 next year.

‘Rising Confidence’

The S&P 500 is trading at 14.3 times reported earnings, or below its average since the 1950s of 16.46, according to data compiled by Bloomberg. It needs to rise 12 percent to reach its October 2007 record of 1,565.15.

“I expect 2013 to deliver a gain for the S&P 500, breaking the all-time high,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $325 billion. “Rising confidence in a sustained recovery will be the primary catalyst driving valuations higher.”

All 10 groups in the S&P 500 retreated this week as energy and utility companies had the biggest losses. The Morgan Stanley Cyclical Index of companies most-tied to the economy dropped 1.4 percent.

Holiday Sales

A measure of S&P 500 companies which rely on consumer discretionary spending dropped 1.6 percent. Coach, the largest U.S. luxury handbag maker, slid 5.7 percent to $54.30. Amazon.com (AMZN:US), the world’s largest online retailer, slid 4.6 percent to $245.18.

U.S. holiday sales growth slowed by more than half this year after gridlock in Washington soured consumers’ moods and Hurricane Sandy disrupted shopping, MasterCard Advisors SpendingPulse said.

Retail sales grew by 0.7 percent from Oct. 28 through Dec. 24, the research firm said, without providing a dollar figure. Sales grew at a 2 percent pace in the same period a year ago. SpendingPulse tracks total U.S. sales at stores and online via all payment forms.

Apple Slumps

Apple paced losses in technology shares, slipping 1.9 percent to $509.59. The company’s stock has dropped 27 percent from a Sept. 19 record high, building up pressure on Chief Executive Officer Tim Cook to introduce a new hit product and fend off Google Inc. and Samsung Electronics Co.

Hewlett-Packard Co. (HPQ:US) erased 4.6 percent to $13.68, leading losses in the Dow. The U.S. Justice Department opened an investigation relating to Autonomy Corp. after the personal- computer maker accused the software company of misrepresenting its performance before Hewlett-Packard bought it last year. Justice Department representatives informed the company on Nov. 21 of the probe, Hewlett-Packard said in a regulatory filing.

Marvell Technology Group Ltd. (MRVL:US) sank 14 percent to $7.17 after the stock was downgraded at JMP Securities LLC, which cited numerous headwinds. The maker of chips for computers and mobile phones tumbled 10 percent on Dec. 26 as a U.S. jury ordered it to pay $1.17 billion, a penalty that may be tripled, for infringing patents on integrated-circuit technology held by Carnegie Mellon University.

Financial Shares

Financial shares in the S&P 500 fell 1.4 percent as a group. JPMorgan Chase & Co. dropped 1.7 percent to $43.24. Citigroup Inc. (C:US) erased 1.2 percent to $39.01.

Research In Motion Ltd. (RIM) gained 8.1 percent to $11.79. The maker of the BlackBerry smartphone rebounded after erasing about a quarter of its market value following its earnings report. While the company raised concerns about declining service fees, investors may have overestimated the impact of the change on earnings per share, Kevin Smithen, an analyst at Macquarie Securities USA Inc. in New York, said.

The shares tumbled 23 percent on Dec. 21 after Chief Executive Officer Thorsten Heins said users who do not want enhanced services, including advanced security, are expected to generate “less or no service revenue.”

Smith & Wesson Holding Corp. (SWHC:US) advanced 1.1 percent to $8.18 as the gunmaker expanded its stock repurchase program by $15 million. The shares have lost 14 percent since the day before a gunman killed 20 students in a Connecticut elementary school on Dec. 14. The stock trade at more than $11 at the end of September.

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

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • COH
    (Coach Inc)
    • $37.05 USD
    • -0.28
    • -0.76%
  • AAPL
    (Apple Inc)
    • $100.96 USD
    • -0.83
    • -0.82%
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