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S&P 500 Erases 2014 Gain as China, Ukraine Offset Economy

By Joseph Ciolli and Callie Bost
March 13, 2014 4:37 PM EDT 68 Comments
Specialist Patrick King, right, works with traders on the floor of the New York Stock Exchange on March 13, 2014.
Photographer: Richard Drew/AP Photo
Specialist Patrick King, right, works with traders on the floor of the New York Stock Exchange on March 13, 2014.

U.S. stocks fell, erasing this year’s gains for the Standard & Poor’s 500 Index, as weaker-than-forecast data from China and tension in Ukraine overshadowed reports showing an improving American economy.

United Technologies Corp., Pfizer Inc. and American Express Co. tumbled more than 2.4 percent as all 30 members of the Dow Jones Industrial Average (INDU) declined. An S&P gauge of homebuilders lost 2.4 percent, falling for a seventh straight day. Dollar General Corp. slipped 2.8 percent as it forecast earnings below analyst estimates.

The S&P 500 fell 1.2 percent to 1,846.34 at 4 p.m. in New York. The benchmark index reversed earlier gains after climbing to within four points of its closing record of 1,878.04 reached on March 7. The Dow dropped 231.19 points, or 1.4 percent, to 16,108.89. Both gauges had their biggest declines since Feb. 3. About 7.5 billion shares changed hands on U.S. exchanges, 12 percent above the three-month average.

“The U.S. data was quite good, but the market doesn’t want to acknowledge that today,” Lillian Seidman, an options strategist at Miller Tabak & Co. in New York, said in an interview. “There’s China concern and Ukraine is not helping. Overall there are many factors to force out sellers right now.”

The S&P 500 has declined 1.7 percent this week, sending the index to a 0.1 percent loss for the year, amid signs China’s economy is slowing and the crisis in Ukraine is escalating.

‘Very Serious’

The U.S. and Germany stepped up pressure on Russia to back down from plans to annex Crimea from Ukraine after the region holds a referendum in three days, warning they’ll exact an economic toll if Russia doesn’t.

Secretary of State John Kerry told a Senate panel in Washington that the U.S. and Europe will take “very serious” steps the day after the vote “if there is no sign” of a resolution to the crisis.

China’s industrial-output, investment and retail-sales growth cooled more than estimated in January and February, data showed today. China announced an economic growth target of 7.5 percent last week, the weakest since 1990, and had its first onshore bond default after a solar-panel maker failed to make an interest payment.

“Ongoing concerns about China’s growth and the fluid situation in Ukraine continue to linger on markets,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said. “As Kerry meets with his Russian counterpart tomorrow in a last-ditch effort to divert the referendum, markets could be a little jittery, and we might be seeing some of that play out today as well.”

U.S. Economy

Global concerns overshadowed better-than-forecast data in the U.S. Retail sales rose in February for the first time in three months, as Americans ventured out to shop even as colder-than-normal temperatures and severe snowstorms blanketed parts of the U.S. A separate report showed the number of Americans filing for unemployment benefits unexpectedly dropped last week to the lowest level since the end of November, indicating further improvement in the labor market.

The government’s monthly jobs report last week showed U.S. employers added more workers than estimated in February. The Federal Reserve is trying to determine how much recent economic data has been affected by weather.

“The lingering question has been how disruptive this deep freeze has been to the economy,” James Dunigan, who helps oversee $127 billion as chief investment officer in Philadelphia at PNC Wealth Management, said by phone. “As we come out of this deep thaw, if we get some better, more clear data on the underlying trend, we’re going to see that the economy is continuing to gain momentum.”

Fed Stimulus

The S&P 500 rallied to all-time highs this year as Fed Chair Janet Yellen said the U.S. economy was strong enough to withstand measured reductions to the central bank’s monthly bond purchases. Three rounds of Fed stimulus have helped push the S&P 500 up 173 percent from a 12-year low, as U.S. equities begin the sixth year of a bull market that started March 9, 2009.

The Federal Open Market Committee, which meets March 18-19, has cut monthly bond buying to $65 billion from $85 billion in December. Policy makers have indicated they plan to taper by $10 billion at each meeting absent a weakening in the economy.

“After last Friday’s employment numbers, we believed they were worthy of the FOMC continuing to take $10 billion off the table every month,” Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co. in Bryn Mawr, Pennsylvania, said in a phone interview. “After the March 18-19 meeting, we should be at $55 billion a month.”

P/E Ratios

Stocks are falling at the anniversary of a bull market that sent the S&P 500’s price-earnings ratio to 17, approaching the level where equities peaked in 2008. The advance is about a week away from supplanting the stretch of equity gains that lasted from 1982 to 1987 to become the fifth longest of all time, according to Bespoke Investment Group LLC.

It’s also three weeks before the end of the first quarter, a period for which Wall Street analysts have lowered forecasts for U.S. earnings growth to 1.9 percent from 6.6 percent at the start of 2014, according to data compiled by Bloomberg. For all of 2014, analysts see profits climbing 7.6 percent, compared with an estimate of 9.7 percent at the end of December.

The decline in equities comes after more than $41 billion returned to U.S. exchange-traded funds that own shares in the past four weeks, reversing withdrawals that swelled to as much as $40.2 billion last month, according to data compiled by Bloomberg.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility, rose 12 percent to 16.22 today. The measure has advanced 18 percent this year.

Nine of 10 main industries in the S&P 500 fell today, with industrial and technology shares dropping more than 1.4 percent. The Morgan Stanley Cyclical Index tumbled 1.6 percent and the Dow Jones Transportation Average slid 1.4 percent.

An S&P index of homebuilders lost 2.4 percent, bringing its decline for the month to 8 percent, as Toll Brothers Inc. dropped 2.7 percent to $36.77 and PulteGroup Inc. fell 2.5 percent to $19.18.

Discount retailer Dollar General slipped 2.8 percent to $57.66 after forecasting first-quarter earnings of no more than 74 cents a share, below the 81 cents estimated by analysts.

Family Dollar Stores Inc. tumbled 2 percent to $60.43.

Offshore Drillers

Offshore drillers decreased after ISI Group said in a client note that deepwater rig demand is weaker than the market has anticipated. Diamond Offshore Drilling Inc. slid 4.3 percent to $44.39, the lowest level since 2005. Noble Corp. fell 4.6 percent to $28.98. Transocean Ltd. erased 3.1 percent to $39.54.

PVH Corp., which owns Calvin Klein, declined 5.7 percent to $115.04. The company was downgraded to market perform from outperform at Wells Fargo & Co., while Morgan Stanley lowered its rating to equalweight from overweight.

Williams-Sonoma Inc. (WSM) jumped 9.8 percent to $64.74. The seller of cookware and home furnishings forecast same-store sales growth of 5 percent to 7 percent this year, compared with the 3.7 percent average analyst projection. Revenue will reach $4.63 billion to $4.71 billion, Williams-Sonoma predicted. Analysts had estimated a number at the low end of that range, data compiled by Bloomberg show.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

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

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