S&P 500 Has Longest Weekly Drop Since 2012 as Fed Cuts QE

February 1, 2014

New York (Feb 1)  U.S. stocks fell for a third week, the longest slump since 2012 for the Standard & Poor’s 500 Index (SPX), after the Federal Reserve cut stimulus even as a rout in emerging markets spurred concern about the global economy.

Apple (AAPL) Inc. sank 8.3 percent after its sales projection missed expectations. Amazon (AMZN).com Inc. tumbled 7.5 percent as its earnings report showed revenue growth slowed outside the U.S. and holiday shipping costs surged. Boeing Co. (BA) dropped 8.3 percent after its profit forecast trailed predictions amid a slowing pace of jet orders. Caterpillar (CAT) Inc. jumped 9 percent after announcing a stock buyback and forecasting better-than-expected earnings amid demand for construction equipment.

The S&P 500 slipped 0.4 percent to 1,782.59 in the week and reached the lowest level since November on Jan. 29. The Dow Jones Industrial Average lost 180.26 points, or 1.1 percent, to 15,698.85. Both gauges capped the worst month in almost two years, with the S&P 500 finishing January down 3.6 percent while the Dow dropping 5.3 percent.

“It’s a volatile cocktail,” David Lafferty, chief market strategist for Natixis Global Asset Management in Boston, said in a phone interview from Boston. His firm oversees $838 billion. “The Fed provides an interesting backdrop for capital leaving emerging markets. Earnings have been solid, but the outlook has generally been fairly weak.”

Emerging Markets

Equities fell as currencies from Turkey to Argentina tumbled, spurring concern that the turmoil in emerging markets may threaten a global economic recovery. While surprise rate increases by central banks in Turkey and South Africa failed to boost their currencies, the U.S. Fed opted to press on with reductions to its monetary stimulus.

Fed policy makers said on Jan. 29 that the central bank will trim its monthly bond purchases by $10 billion to $65 billion, cutting the pace of stimulus for a second straight meeting because of an improving economy.

U.S. gross domestic product expanded 3.2 percent in the fourth quarter, matching economists’ estimates, according to Commerce Department figures. Other reports over the week showed that consumer spending climbed more than forecast even as incomes stagnated while orders for durable goods unexpectedly slumped in December by the most in five months.

Three rounds of Fed bond buying has helped drive the S&P 500 up 163 percent from a 12-year low in 2009 while pushing capital into emerging markets in search of higher returns. The benchmark gauge for U.S. equities reached a record 1,848.38 on Jan. 15 and has fallen 3.6 percent since then.

January Loss

The S&P 500’s loss for the month marked its first January decline since 2010. A lower January resulted in a full-year decline for the index 58 percent of the time since 1950, according to data compiled by MKM Partners LLC.

“Momentum has weakened,” Jim Welsh, a portfolio manager at Forward Management LLC in San Francisco, said in a phone interview on Jan. 30. His firm oversees $5.5 billion. “Going into this year, a lot of people were talking about a synchronized growth story. I can see later this year where people are disappointed relative to their expectations.”

Walt Disney Co. and Merck & Co. are among 92 companies in the S&P 500 scheduled to announce financial results next week. Of the 251 companies that have reported, 79 percent beat analysts’ profit estimates while 66 percent exceeded on sales, data compiled by Bloomberg show.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index added 1.5 percent over the week to 18.41, the highest level since October. The gauge of S&P 500 options known as the VIX (VIX) has jumped 34 percent this year.

Consumer, energy and technology companies fell the most among 10 S&P 500 groups, sinking at least 0.9 percent.

Apple slumped 8.3 percent to $500.60. The company’s iPhone sales for the holiday season missed analysts’ estimates, adding pressure for Chief Executive Officer Tim Cook to release new hit products to revive growth.

Even after releasing the iPhone through the world’s largest carrier, China Mobile Ltd., Apple said revenue will be $42 billion to $44 billion in the current quarter, compared with analysts’ estimates of $46.1 billion. Anything short of $43.6 billion would mark the company’s first sales decline since 2003.

Amazon sank 7.5 percent to $358.69 in the week, its worst drop since 2011. Net income was 51 cents a share in the fourth quarter, missing the average analyst estimate of 69 cents as the company’s global growth weakened. Amazon’s international sales growth slowed to 13 percent in the quarter from 21 percent a year earlier.

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