Bloomberg News

S&P 500 Falls to Start Year Lower for 1st Time Since 2008

January 02, 2014

U.S. Stocks Decline After S&P 500 Record as Tech Shares Slide

Traders work on the floor of the New York Stock Exchange on Jan. 2, 2014. Photographer: Scott Eells/Bloomberg

U.S. stocks declined, with the Standard & Poor’s 500 Index starting the year lower for the first time since 2008, after benchmark indexes posted the biggest annual rallies in more than 15 years.

Apple Inc. (AAPL:US) fell 1.4 percent after Wells Fargo & Co. cut its rating on the stock, sending technology shares lower by 1.1 percent as a group. Analog Devices Inc. lost 3.2 percent after Goldman Sachs Group Inc. advised investors to sell the shares. Newmont Mining Corp. added 4 percent as gold futures rose the most in three weeks in New York.

The S&P 500 slid 0.9 percent to 1,831.98 at 4 p.m. in New York for the biggest decline in three weeks. The Dow Jones Industrial Average (INDU) decreased 135.31 points, or 0.8 percent, to 16,441.35. About 6 billion shares changed hands on U.S. exchanges, in line with the three-month average.

“More people seem to be wary, as we are, of potential corrections as markets get overexcited,” Oliver Wallin, who helps oversee $5.6 billion as investment director at Octopus Investments Ltd. in London, said by phone. “The question is just when to time it. A lot of people are willing to continue in this rally but are nervous at the same time. We’ve got one eye on the exit but we know there is money to be made in the short term.”

The S&P 500 surged 30 percent in 2013, finishing the year at an all-time high for the first time since 1999. The Dow average climbed 27 percent in 2013 for its best performance since 1995.

Start Streak

Today’s decline on the S&P 500 snapped a streak of five straight gains on the first trading session of January. The index had risen an average of almost 2 percent that day since 2009, according to data compiled by Bloomberg.

Equity returns will slow this year, Wall Street strategists forecast. The S&P 500 will end 2014 at 1,950, according to the average of 20 estimates compiled by Bloomberg. That represents a 5.5 percent gain from the end of 2013.

Analysts are predicting 116 stocks in the index will see price declines this year, according to average year-end targets compiled by Bloomberg. That’s the greatest number of bearish forecasts for the S&P 500 in nine years, the data show.

The average company in the index is estimated to rise 4.8 percent this year, according to the data. That’s the least optimistic forecast since Dec. 31, 2004, when the average was 4.7 percent. Alcoa Inc. and Harris Corp. are among the companies projected to fall the most this year.

Earnings Forecast

“I don’t think this sell-off will be a trend,” Walter Todd, who oversees about $950 million as chief investment officer of Greenwood Capital Associates LLC in Greenwood, South Carolina, said in a telephone interview. “In fact, I would expect the market to trade up into earnings season and January. Once people start getting a read on the fundamentals for companies and outlooks, that will dictate how the market goes from there.”

Analysts estimate earnings for S&P 500 companies in the fourth quarter grew by 5.2 percent, according to data compiled by Bloomberg. Alcoa will unofficially begin the reporting season when it discloses results after the markets close on Jan. 9.

Three rounds of Federal Reserve stimulus and better-than-forecast corporate earnings have helped the S&P rally as much as 173 percent from a 12-year low in 2009. The Fed announced plans in December to reduce the pace of bond buying amid faster-than-estimated economic growth.

Data today indicated applications for U.S. unemployment benefits declined last week to the lowest level in a month. Jobless claims fell by 2,000 to 339,000 in the period ended Dec. 28, Labor Department data showed. The median forecast of 26 economists surveyed by Bloomberg called for 344,000 claims.

Factory Data

A separate report showed the Institute for Supply Management’s factory index fell to 57 in December from the prior month’s 57.3, which was the highest since April 2011. Readings above 50 indicate expansion.

Reports from Europe today confirmed factory output in the euro area expanded last month at the fastest pace since May 2011 as Italy’s manufacturing beat estimates and Germany production grew for a sixth month. Data yesterday showed China’s official Purchasing Managers’ Index slipped to a four-month low in December, while a private report today also signaled manufacturing grew at a slower pace.

American consumers in 2013 were more upbeat than at any time in the previous six years as views on the economy, finances and the buying climate improved. The Bloomberg Consumer Comfort Index averaged minus 31.4 for 2013, the highest since 2007, when it was minus 10.5.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 (SPX) options known as the VIX, rose 3.7 percent to 14.23 today for a fourth straight day of increases. The gauge finished 2013 with a 24 percent drop, the largest decline since 2009.

All 10 main S&P 500 groups retreated at least 0.5 percent today, with utility and energy shares dropping at least 1.3 percent for the biggest declines. Exxon Mobil Corp. slid 1.4 percent to $99.75.

Apple sank 1.4 percent to $553.13, leading an index of technology-hardware stocks to a 1.4 percent decline. Wells Fargo analyst Maynard Um cut the rating on the stock to market perform from outperform, saying the iPhone maker’s gross margin could come under pressure later in the year.

Analog Devices fell 3.2 percent to $49.28. Goldman Sachs analyst James Covello cut the circuit maker from sell from neutral and lowered the stock’s price target to $41 a share. Wells Fargo analyst David Wong also downgraded the stock, to market perform from outperform, citing lower semiconductor demand through the end of last year.

Range Resources Corp. dropped 3.1 percent, the most since October, to $81.74 after the company said in a filing that Chief Executive Officer John Pinkerton retired on Dec. 31.

Gold Rally

Newmont Mining increased 4 percent to $23.96. Gold for February delivery settled 1.9 percent higher in New York after the metal posted its largest annual decline in three decades. Newmont fell 50 percent last year for the biggest decline in the S&P 500.

Urban Outfitters Inc. jumped 1.8 percent to $37.78. Jefferies Group LLC analyst Randal Konik upgraded the clothing retailer to buy from hold. Urban Outfitters dropped 5.7 percent last year, making it the only consumer discretionary stock in the S&P 500 to decline.

American Eagle Outfitters Inc. rose 2.3 percent to $14.73 after Konik raised his rating to buy from hold.

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

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


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