Bloomberg News

S&P 500 Has Worst Weekly Drop Since November on Earnings

April 20, 2013

U.S. stocks fell for the week, sending the Standard & Poor’s 500 Index to the biggest retreat since November, as earnings from Bank of America Corp. and International Business Machines Corp. missed estimates and China’s economic growth unexpectedly slowed.

Equities rose on the final day as companies from Microsoft Corp. to Chipotle Mexican Grill Inc. posted better-than- anticipated results. Bank of America and IBM (IBM:US) sank at least 4.2 percent for the week. Apple Inc. declined 9.1 percent as one of its suppliers reported an inventory glut. Freeport-McMoRan Copper & Gold Inc. and Nabors Industries Ltd. tumbled more than 7.8 percent amid plunging commodity prices.

The S&P 500 slipped 2.1 percent to 1,555.25 over the five days, trimming its gain for the year to 9.1 percent. The Dow Jones Industrial Average declined 317.55 points, or 2.1 percent, to 14,547.51 for the worst week since June 1.

“Everyone has been waiting for a pullback and here it is,” Andres Garcia-Amaya, New York-based global market strategist at JPMorgan Chase & Co.’s mutual funds unit, which oversees $400 billion in assets, said by phone. “The market is just reflecting that we’re experiencing a soft patch when it comes to economic data. Companies are still beating earnings expectations. Where companies have come short is beating revenue expectations.”

Equities fell for the week as China’s gross domestic product expanded 7.7 in the first quarter from a year earlier, down from 7.9 percent growth in the fourth quarter. In the U.S., economic reports showed a mixed picture, with new-home construction rising to the highest level in almost five years while factory production and an index of U.S. leading indicators unexpectedly dropped.

Since Alcoa

The S&P 500 (SPX) has lost 0.5 percent since April 8, when Alcoa Inc. became the first company in the Dow to announce earnings. Of the 103 that have reported so far, 72 percent have exceeded analysts’ predictions on profits while 51 percent trailed on sales, data compiled by Bloomberg show.

Exxon Mobil Corp. and 3M Co. are among 170 companies scheduled to announce results next week. Profits at S&P 500 companies fell 1.1 percent in the first three months of the year, according to forecasts compiled by Bloomberg. That would mark the first year-over-year decrease since 2009.

The bull market in U.S. equities entered its fifth year last month as the S&P 500 more than doubled from a 12-year low in 2009, driven by better-than-estimated earnings and three rounds of monetary stimulus from the Federal Reserve.

Bearish Sentiment

Individual investors, who pulled more than $300 billion out of U.S. equity mutual funds in the last four years, aren’t convinced the rally will continue. About 54.5 percent of respondents expected the market to fall over the next six months, the highest level of bearishness since July 2010, according to a weekly survey from the American Association of Individual Investors released on April 11. The measure was at 48.2 percent in the April 18 survey.

“A bull market requires people to be negative and turn positive, and we certainly still have lots of those around,” John Manley, chief equity strategist for Wells Fargo Funds Management, which advises $222.7 billion in assets in the Wells Fargo Advantage Funds, said in a phone interview. “The fact that people are still so concerned about the economy is encouraging from an equity market perspective because it allows people to change their minds and move into stocks.”

Volatility Rises

The Chicago Board Options Exchange Volatility Index (VIX), or VIX, surged 24 percent to 14.97 for the biggest weekly increase since December. The VIX, which moves in the opposite direction to the S&P 500 about 80 percent of the time, reached a six-year low in March and is still down 17 percent this year.

The KBW Bank Index (BKX) slipped 2.4 percent as 21 out of its 24 members declined. Bank of America tumbled 4.2 percent to $11.66 after shortfalls in mortgage banking and trading marred first- quarter results and slowed the company’s turnaround.

Morgan Stanley (MS:US) fell 5.7 percent to $20.58. The firm said bond-trading revenue slumped 42 percent in the first quarter and stock-trading revenue declined 19 percent. The combined drop was the most among the largest U.S. banks.

Technology companies helped drag the Nasdaq Composite Index down 2.7 percent, the most since October. IBM plunged 10 percent to $190, for the largest decline since 2008. The largest computer-services provider missed analysts’ earnings estimates for the first time since 2005 as the company struggles to boost hardware sales.

Apple Supplier

Apple (AAPL:US) dropped 9.1 percent to $390.53, the lowest level since December 2011. The company’s audio-chip supplier, Cirrus Logic Inc., reported an inventory glut that suggests iPhone sales may fall short of analysts’ estimates. Cirrus Logic tumbled 17 percent to $17.77.

EBay Inc. slipped 8.6 percent, the biggest drop since August 2011, to $52.39. The operator of the largest Internet marketplace posted first-quarter revenue that missed some analysts’ estimates and forecast disappointing sales and profit for the current period as weakness in Europe weighs on growth at its PayPal unit.

Energy and mining stocks tumbled as the S&P GSCI gauge of 24 commodities reached the lowest level since July 2012 during the week while gold plunged 13 percent in two sessions through April 15, the biggest slump since 1980.

Freeport-McMoRan declined 12 percent to $28.24 even as the copper producer reported profit that exceeded analysts’ estimates. Nabors, the world’s largest land-rig contractor, retreated 7.8 percent to $14.83. Newmont Mining Corp., the biggest U.S. gold miner, lost 9.3 percent to $32.98.

GE, Microsoft

General Electric Co. sank 7.3 percent, the most since August 2011, to $21.75 after a first-quarter slide in its Power & Water business pulled total industrial earnings down 11 percent.

Textron Inc. tumbled 12 percent to $26.35 after cutting its 2013 profit forecast as demand for Cessna jets declined.

Microsoft (MSFT:US) climbed 3.4 percent to $29.77. The world’s largest software maker reported third-quarter profit that exceeded analysts’ estimates, buoyed by cost controls and sales of business and server software amid weak demand for personal computers running the new Windows 8 operating system.

Chipotle rallied 7.1 percent to $366.25. The fast-casual dining chain’s first-quarter sales topped analysts’ estimates, helped by an acceleration of store openings.

Coca-Cola Co. jumped 3.9 percent to $42.66, the highest level since 1998, after reporting first-quarter profit that topped analysts’ estimates as Latin American sales volume rose. The company also announced a deal to sell some bottling distribution rights in North America.

Sprint Nextel Corp. surged 15 percent, the most in the S&P 500, to $7.17. Dish Network Corp. (DISH:US) offered to buy the third- largest U.S. wireless carrier for $25.5 billion, challenging a bid by Japan’s Softbank Corp.

Life Technologies Corp. rallied 8.2 percent to $73.54. Thermo Fisher Scientific Inc., the second-biggest maker of life- sciences equipment by market value, agreed to buy Life Technologies (LIFE:US) for about $13.6 billion in an all-cash deal. Life Technologies makes laboratory equipment that helps to blueprint DNA.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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


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Companies Mentioned

  • IBM
    (International Business Machines Corp)
    • $195.24 USD
    • 1.61
    • 0.82%
  • MS
    (Morgan Stanley)
    • $33.4 USD
    • 0.05
    • 0.15%
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