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U.S. Stocks Fall, Ending 2-Week Rally, on Growth Concern

U.S. stocks fell, ending a two-week winning streak by the Standard & Poor’s 500 Index, after the Federal Reserve cut its economic forecast and a bear market in commodities prices dragged down energy producers.

Equities rose in the week’s final session as JPMorgan Chase & Co. (JPM) paced a rally in banks following a downgrade by Moody’s Investors Service that was no worse than the credit-rating firm had warned. Energy producers lost the most in the S&P 500 for the week, sinking 3.3 percent as economic reports added to signs of a global slowdown. Procter & Gamble Co. (PG) slid 4.9 percent and Bed Bath & Beyond Inc. tumbled 16 percent after disappointing profit forecasts. Facebook Inc. jumped 10 percent.

The S&P 500 slid 0.6 percent to 1,335.02, snapping a two- week rally of 5.1 percent. The Dow Jones Industrial Average declined 126.39 points, or 1 percent, to 12,640.78, trimming its advance for the year to 3.5 percent.

“We are in a low-growth environment,” David Pearl, who oversees $21 billion in assets as co-chief investment officer at New York-based Epoch Investment Partners, said in a phone interview. “If the economy around the world is slow, corporate profitability is going to be slow, so the return will be mild.”

Equities rose on the first two days of the week amid optimism that Greece’s attempts to form a government will help the nation stay in the euro and that the Fed would announce more measures to spur the economy. Global stocks tumbled on June 21, with the S&P 500 plunging 2.2 percent for its second-biggest drop of the year, after the central bank cut its growth estimate while data showed euro-area manufacturing shrank at the fastest pace in three years and a Chinese output gauge indicated contraction.

Operation Twist

U.S. stocks retreated even as the Fed said it will extend its stimulus program known as Operation Twist, disappointing investors anticipating a more aggressive approach.

“The Fed is doing whatever it can and be extraordinarily accommodative,” Dean Junkans, chief investment officer for the wealth management, brokerage and retirement units of San Francisco-based Wells Fargo & Co., which oversees $1.3 trillion in client assets, said in a June 20 phone interview. “It’s important for them to do something to show support for the market, but I don’t think it will have a material impact on the economy.”

Expectations for further policy action gave stocks their first back-to-back weekly gain since April on June 15. The S&P 500 earlier this month was on the brink of a so-called correction, or a 10 percent drop from a recent peak, on concern about a global slowdown and a worsening of Europe’s crisis.

The Citigroup Economic Surprise Index for the U.S., which drops when reports miss projections in Bloomberg surveys, hit minus 64.8 during the week, the lowest level since August.

Energy Tumbles

The S&P 500 energy index slumped 3.3 percent as concern about slowing global growth sent the S&P GSCI commodities gauge to the lowest level since 2010 on June 21, extending its decline from a February high to 22 percent. EOG Resources Inc. (EOG) erased 9.3 percent to $87.62. Chevron Corp. (CVX) slipped 3.7 percent to $100.44 as oil prices touched an eight-month low.

Financial shares rallied on the last day to pare their weekly loss to 0.1 percent as group. The prospect of downgrades had weighed on the industry since Moody’s said in February it was reviewing 17 banks with capital-markets operations because of fragile confidence and tighter regulations that pinched revenue. The S&P’s financials gauge sank 17 percent from its 2012 peak on March 26 through June 4.

JPMorgan Chase advanced 2.7 percent during the week as none of the financial firms was cut more than Moody’s had forecast. Morgan Stanley (MS), the world’s largest brokerage, gained 1.3 percent to $14.14 on June 22, paring its loss for the week to 1.1 percent.

Second Cut

P&G declined 4.9 percent to $59.83, the biggest loss since August 2009. The world’s largest consumer-goods company cut its earnings and revenue forecasts for the second time in less than two months, hurt by slowing sales growth in Europe and the U.S.

Bed Bath & Beyond (BBBY) dropped 16 percent, the most since January 2000, to $61.20, after forecasting fiscal second-quarter profit that was less than analysts’ estimated amid slowing same- store sales.

Ryder System Inc. (R) slumped 16 percent to $35.44 for the biggest retreat in the S&P 500. The truck leasing company cut its full-year earnings forecast because of lower demand for commercial rentals.

FedEx Corp. (FDX) gained 3.3 percent to $90.54. The operator of the world’s largest cargo airline climbed after pledging “significant cost reductions.” Executives said revenue and earnings growth will be impacted by “weaker economic conditions” such as the European debt crisis, and slowing growth in Asia.

New Buy

Facebook climbed 10 percent to $33.05 as Nomura Holdings Inc. rated the social-network operator a buy in new coverage. “Facebook (FB)’s industry-leading reach, engaged user base, and comprehensive user dataset will enable the company to continue to grow and take share in the display market,” Brian Nowak, a New York-based analyst with Nomura, wrote in a note.

The company has climbed 28 percent since its low on June 5, as it unveiled new products and services, and capped its first weekly gain on June 15. Concern Facebook was overvalued and that the company will struggle to increase revenue fast enough pushed the stock down as much as 32 percent from its IPO price of $38 on May 17.

Microsoft Corp. (MSFT) added 2.3 percent to $30.70. The world’s largest software maker unveiled its own Windows-powered tablet computer called Surface in a renewed attempt to take on Apple Inc.’s iPad.

First Solar Inc. (FSLR) surged 14 percent, the most in the S&P 500, to $15.88. The biggest maker of thin-film solar panels received permission to continue construction on a $1.36 billion power project in Los Angeles County.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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