The Standard & Poor’s 500 Index fell for the week, after touching an all-time high, as weaker-than-estimated earnings at companies from Citigroup Inc. to CSX Corp. offset an improving outlook for the global economy.
Citigroup and CSX dropped at least 4.4 percent as quarterly results missed analysts’ estimates. Best Buy Co. sank 35 percent after price cuts failed to draw as many holiday shoppers as expected. American Express Co. rallied 2.7 percent as fourth-quarter profit doubled. Beam (BEAM:US) Inc. jumped 24 percent after Suntory Holdings Ltd. said it will acquire the spirits maker in a $16 billion deal.
The S&P 500 (SPX) declined 0.2 percent to 1,838.70 for the five-day period. The Dow Jones Industrial Average gained 21.51 points, or 0.1 percent, to 16,458.56 for the week.
“A period of consolidation is in order,” Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, said in a phone interview from Minneapolis. He helps oversee $112 billion. “We’re in a sideways trending market. Earnings are front and center and to that end I think it’s still too early to have a good read on fourth-quarter results.”
Twenty-eight companies in the S&P 500 including Goldman Sachs Group Inc. and Bank of America Corp. reported quarterly earnings during the week. Out of the 52 companies in the gauge that have posted fourth-quarter results so far, 62 percent have exceeded analysts’ profit estimates, and 63 percent have topped revenue projections, according to data compiled by Bloomberg.
Per-share profit for companies in the benchmark probably climbed 6 percent in the fourth quarter, while sales increased 2 percent, according to analysts surveyed by Bloomberg.
Equities also fell during the week amid concern over valuations. The S&P 500 trades at 15.6 times the estimated earnings of its members, near the highest level since 2009 and more than the five-year average multiple of 14.1, data compiled by Bloomberg show.
Three rounds of Federal Reserve monetary stimulus helped the S&P 500 rise 172 percent from a 12-year low in 2009. The benchmark index rallied 30 percent last year, the most since 1997.
“We’re asking our clients to rein in their expectations for stock market returns,” Michael Binger, who helps oversee $450 million as senior portfolio manager for Gradient Investments in Arden Hills, Minnesota, said in a phone interview. “This is going to be a more normalized year for stock returns, and by normalized we mean somewhere between five and 10 percent. This year we think that return is going to be driven by earnings growth, not multiple expansion.”
The S&P 500 touched a record on Jan. 15 as the World Bank said it sees improvement in the euro-zone helping the world economy expand 3.2 percent this year, compared with a June projection of 3 percent. Data during the week showed U.S. retail sales rose in December while New York-area manufacturing grew more than forecast.
The Federal Reserve in its Beige Book business survey said that “moderate” growth across most of the country last month was buoyed by gains in holiday spending by consumers, an improving labor market and strength in manufacturing.
“The markets are taking all of this in stride with only minimal declines because in reality the reasons for optimism for the overall economy continue,” Anastasia Amoroso, global market strategist at J.P. Morgan Funds, which oversees about $400 billion, said in a phone interview. “We’ve managed to make this shift from an economy that’s been on life support to an economy that is in a self-sustaining expansion.”
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX (VIX), advanced 2.5 percent for the week to 12.44. The gauge has fallen 9.3 percent this year.
Six of 10 main S&P 500 groups retreated for the week, with consumer-discretionary and energy companies dropping at least 1.1 percent to lead declines. Nike Inc. lost 4.6 percent to $73.39 for the worst performance in the Dow.
Best Buy plunged 35 percent, the most since 2000, to $24.43 after U.S. same-store sales fell in the holiday shopping season. Chief Executive Officer Hubert Joly, in a bid to stop customers from defecting to online rivals such as Amazon.com Inc., has piled on discounts and made permanent a policy of matching competitors’ prices to cut down on the practice known as “showrooming,” when shoppers use Best Buy stores to scout products they later buy online elsewhere.
J.C. Penney Co. fell 11 percent to $6.52 after saying it will close 33 stores and eliminate about 2,000 jobs to help save $65 million a year. The struggling department store-chain is unlikely to recover and may have to dilute shareholders by raising more capital this year, Craig-Hallum Capital Group Ltd. analyst Alex Fuhrman said in a note to clients.
CSX tumbled 5.7 percent to $27.23. The biggest railroad in the eastern U.S. posted profit that trailed analysts’ estimates for the first time in eight quarters as coal shipments declined amid a shift to natural gas.
Citigroup slid 4.5 percent to $52.27 as a slump in bond trading contributed to fourth-quarter results that missed Wall Street estimates. Earnings were marred by a 15 percent drop in fixed-income revenue excluding accounting charges, with adjusted profit down 8 percent in securities and banking, and 16 percent in global consumer banking, Citigroup said.
Financial companies in the S&P 500 lost 0.5 percent for the week, as Goldman Sachs declined 1.2 percent to $176.28 and JPMorgan Chase & Co. retreated 0.7 percent to $58.11.
PNC Financial Services Group Inc. rose 4.4 percent to $82.26. The second-biggest U.S. regional bank posted fourth-quarter profit that beat analysts’ estimates as the lender trimmed expenses and set aside less money for soured loans.
American Express, the biggest credit-card issuer by purchases, advanced 2.7 percent to a record $90.97. A pickup in household wealth and consumer confidence propelled card purchases, boosting fourth-quarter net income to $1.3 billion from $637 million a year earlier.
Visa Inc., the world’s biggest bank-card network, climbed 5 percent to $232.18 for the largest advance in the Dow.
Beam jumped 24 percent to $83.34. Suntory, the Japanese whiskey and beer maker, is seeking to boost overseas growth by gaining brands such as Maker’s Mark whiskey, Jim Beam and Canadian Club liquor. The deal, once completed, will create the world’s third-largest premium spirits company.
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