Bloomberg News

S&P 500 Posts 2nd Weekly Drop in 2013 Amid Cyprus Concern

March 23, 2013

The Standard & Poor’s 500 Index (SPX) posted its second weekly drop of the year as Cyprus struggled to stave off financial collapse and data on the euro-area economy overshadowed better-than-estimated U.S. reports.

Equities advanced on the last trading day amid earnings that topped projections and optimism a solution would emerge for Cyprus. Material, financial and energy stocks led losses for the week, as investors sold shares of companies most tied to economic growth. Oracle Corp. (ORCL:US) lost 12 percent as results missed estimates. FedEx Corp. (FDX:US) fell 9.7 percent after lowering its 2013 earnings forecast. KB Home (KBH:US) rose 7.3 percent amid a narrower loss and data showing an improving housing market.

The S&P 500 slumped 0.2 percent to 1,556.89 for the five days, ending a three-week streak of advances. The benchmark equity gauge has fallen only one other week in 2013. The Dow Jones Industrial Average (INDU) erased 2.08 points, or less than 0.1 percent, to 14,512.03.

“We’ve got one week to go and the quarter’s done, and it’s a solid ‘A’ for stocks,” David Sowerby, who helps oversee about $185 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan, said by telephone. “When you’ve had such a big run, there’s a tendency to want to coast home, and that plays into the European uncertainty, leading to some break in the winning streak this week.”

Cypriot lawmakers raced for a compromise with European officials to avert the Mediterranean island’s financial collapse, after rejecting a tax on bank deposits that was demanded as a condition for a bailout package. Equities also slid as a purchasing managers’ index in Germany fell and euro- area manufacturing contracted, adding to signs the region is struggling to emerge from a recession.

Economic Reports

The European developments overshadowed data indicating an improving economy in the U.S. Fewer Americans than forecast filed jobless claims in the latest week. Sales of previously owned U.S. homes rose to the highest level in more than three years in February, and a gauge of leading economic indicators topped estimates for last month.

“The greater evidence of Europe staying weaker longer goes beyond Cyprus,” Sowerby said. “In the more near term, it’s going to win that tug-of-war with relative U.S. business conditions modestly improving.”

The S&P 500’s weekly decline pared the index’s advance this year to 9.2 percent. The measure is still within 10 points of an all-time record set in October 2007. The Dow reached an intraday high after closing at record levels a week earlier. The bull market in equities entered its fifth year this month as the S&P 500 more than doubled from its bottom in 2009, driven by an unprecedented three rounds of bond purchases by the Federal Reserve.

Fed Stimulus

The Fed said March 20 it will continue its stimulus efforts in order to boost growth in the economy. Fed Chairman Ben S. Bernanke said the central bank would alter its monthly bond buying in response to gains in the job market, underscoring a need for flexibility as he expands Fed assets beyond a record $3 trillion.

Housing “data still suggests that there’s improvement there,” Christopher McHugh, who helps manage $10 billion at Turner Investment Partners in Berwyn, Pennsylvania, said by phone. “Markets understand that Cyprus is a one-off situation.”

The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against declines in the S&P 500, jumped 20 percent to 13.57 for the week. The gauge, known as the VIX, is still down 25 percent this year and reached its lowest level since February 2007 on March 14.

Raw Materials

Raw-materials producers fell the most out of 10 S&P 500 (SPXL1) groups, losing 2 percent. Alcoa Inc., the biggest U.S. aluminum producer, decreased 2.1 percent to $8.45. Cliffs Natural Resources Inc., the largest U.S. iron ore producer, tumbled 6 percent to $20.76.

Financial and energy companies declined 1.5 percent and 1 percent, respectively. Lenders posted the biggest loss since November, as the KBW Bank Index (BKX) retreated 1.6 percent. JPMorgan Chase & Co. fell 2.5 percent to $48.78. Citigroup Inc. sank 4.3 percent to $45.23.

Oracle plunged 12 percent to $31.98, for the biggest decline in the S&P 500. Third-quarter sales and profit missed analysts’ (ORCL:US) estimates as corporate customers transitioning to Web- based programs bought less hardware and software.

Economic Bellwether

FedEx tumbled 9.7 percent, the most since September 2011, to $98.48. The economic bellwether that moves goods as varied as medical supplies and auto parts lowered its 2013 earnings forecast. FedEx said it was planning capacity cuts in Asia amid a widening customer shift to its cheaper overseas delivery services.

Cisco Systems Inc. (CSCO:US) tumbled 5.4 percent to $20.75. FBR & Co. lowered its rating (CSCO:US) on the world’s biggest maker of computer networking equipment, citing reduced demand for the company’s components.

Ten out of the 11 companies in the S&P Supercomposite Homebuilding Index rose this week. U.S. builders are benefiting as a tight supply of existing homes for sale and mortgage rates near record lows boost demand for new properties.

KB Home, the best-performing U.S. homebuilder stock this year, rallied 7.3 percent to $21.77. The Los Angeles-based company reported a narrower loss (KBH:US) for its fiscal first quarter as sales and prices climbed amid the nationwide rebound in housing construction.

Nike, Apple

Nike Inc. added 8.7 percent to a record $59.53. Price increases enacted last year paid off for the world’s largest sporting-goods company as its gross margin widened for the first time in nine quarters. The company also reported that orders for the Nike brand in China (NKE:US), excluding changes in currency exchange rates, gained after sales there sank 10 percent last quarter for a second straight decline.

Apple Inc. (AAPL:US) rose 4.1 percent to $461.91. The world’s most valuable company closed above its 50-day moving average for the first time since Oct. 4, as speculation over a dividend increase helped end the stock’s longest streak ever of staying below the threshold.

Fannie Mae surged 98 percent to 79 cents, while Freddie Mac increased 93 percent to 78 cents. The two government-seized mortgage financiers appear increasingly likely to pay billions of dollars to the U.S. Treasury. Fannie Mae said it expects to report “significant net income” for the quarter ended Dec. 31, 2012.

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Sarah Pringle in New York at springle1@bloomberg.net

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


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Companies Mentioned

  • ORCL
    (Oracle Corp)
    • $39.61 USD
    • -0.78
    • -1.97%
  • FDX
    (FedEx Corp)
    • $146.75 USD
    • -0.13
    • -0.09%
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