S&P 500 Snaps Two-Week Rally Amid Global Economy Concern

Stocks fell for the week, after the Standard & Poor’s 500 Index (SPX) climbed to the highest level since 2007, as concern about slowing global growth overshadowed optimism about central bank stimulus.

Financial and commodity shares dropped the most for the week among 10 industry groups in the S&P 500 as Bank of America Corp. (BAC) and Alcoa Inc. (AA) declined more than 4.6 percent. FedEx Corp. (FDX) and Norfolk Southern Corp. (NSC) slumped at least 6.4 percent amid disappointing forecasts, driving the Dow Jones Transportation Average to its biggest weekly loss since November. Apple Inc. (AAPL) climbed 1.3 percent amid its iPhone 5 debut that analysts say will be the largest for any consumer electronics in history.

The S&P 500 slipped 0.4 percent to 1,460.15, snapping a two-week rally. The benchmark index is up 16 percent for 2012. The Dow Jones Industrial Average lost 13.90 points, or 0.1 percent, to 13,579.47 during the week.

“We’re having a consolidation,” Jason Cooper, who helps oversee $2.5 billion in South Bend, Indiana, at 1st Source Investment Advisors, said in a phone interview. “That can be constructive in that we’re not just throwing money and not thinking about our decisions. We’re starting to get a little bit of an indication about what we could be seeing in terms of earnings for some of these companies. A lot of them are going to be very cautious.”

Equities slipped amid increasing signs that the global economic slowdown is worsening. A Chinese manufacturing survey pointed to an 11th month of contraction. Japan’s exports fell while euro-area services and manufacturing output dropped to a 39-month low. In the U.S., more Americans than forecast filed unemployment claims and a gauge of leading indicators slipped. To spur growth, the Bank of Japan unexpectedly increased its asset-purchase target.

Central Banks

The S&P 500 has jumped 14 percent from a June low amid optimism central banks around the world will take steps to stimulate the economy. Earlier this month, the Federal Reserve unveiled another round of quantitative easing and the European Central Bank announced specifics of its bond-buying plan.

While the rally brought the S&P 500 to its highest level since December 2007 and within less than 10 percent of its all- time high of 1,565.15, the index is trading at about 14.9 times its companies’ reported earnings. That compares with an average multiple of about 16.3 since 1954.

The S&P 500’s change was capped at 0.3 percent every day for the week. The last time the index had a week with daily swings of less than that was during the final week of 2010, data compiled by Bloomberg show.

‘Little Surprising’

“The move that we’ve had in stocks may seem a little surprising and investors are digesting all the policy actions that have occurred,” Jeff Schwarte, a money manager who helps oversee about $260 billion in Des Moines, Iowa, at Principal Global Investors, said in a phone interview. “People are sitting on their hands waiting for more data to support their positioning.”

Companies whose earnings are most tied to economic swings performed the worst for the week, with financial and commodity shares falling at least 1.7 percent as a group. The Morgan Stanley Cyclical Index tumbled 1.9 percent, the most since June.

Bank of America slipped 4.6 percent to $9.11. Alcoa declined 7.2 percent to $9.13 as the biggest U.S. aluminum producer was cut to hold from buy by Peter Ward, an analyst with Jefferies Group Inc.

Commodities Tumble

Alpha Natural Resources Inc. (ANR) plunged 16 percent, the most in the S&P 500, to $7.21. The second-largest U.S. coal producer will close eight mines, eliminating 1,200 jobs and reducing output in its biggest production cut since a boom in shale-gas output began driving down fuel prices. The S&P GSCI Spot Index of 24 commodities tumbled 4.4 percent for the week as crude dropped the most since June.

The Dow Transportation (TRAN) slipped 5.9 percent, the biggest weekly retreat since November. FedEx dropped 6.4 percent to $84.39. The operator of the world’s largest cargo airline cut its annual profit outlook because a weakening economy has prompted shippers in the U.S. and overseas to switch to cheaper delivery options.

Norfolk tumbled 13 percent, the most since March 2009, to $65. The second-largest eastern U.S. railroad said third-quarter profit will fall short of analysts’ estimates as volumes slid. CSX Corp. (CSX) dropped 8.8 percent to $21.13, while Union Pacific Corp. (UNP) slid 7.1 percent to $119.37.

Bed Bath & Beyond Inc. (BBBY) sank 14 percent to $61.57. The operator of more than 1,000 home-furnishing stores reported second-quarter profit that trailed analysts’ estimates.

Penney Drops

J.C. Penney Co. dropped 10 percent to $25.89. Chief Executive Officer Ron Johnson’s showcase of the stores’ new layout on Sept. 19 failed to inspire confidence in his remake of the 110-year-old retailer. Billionaire investor Michael Price said in a “Bloomberg Surveillance” interview Sept. 21 that he’s bullish on the company because it is “doing all the right things” and will benefit from rising demand among U.S. shoppers.

Phone stocks rose the most among the S&P 500’s 10 industry groups, climbing 2.4 percent. Sprint Nextel Corp. (S), the third- largest U.S. wireless carrier, rallied 7.4 percent to $5.65 after Chief Executive Officer Dan Hesse said the company would probably play a role in future industry consolidation.

MetroPCS Communications Inc. (PCS), a prepaid carrier that Goldman Sachs Group Inc. touted as a takeover target for Sprint, increased 9.4 percent to $11.63.

Apple climbed 1.3 percent to $700.10 for an eighth straight weekly gain, the longest stretch in three years. Apple may sell as many as 10 million iPhones during the weekend sales rush, according to Gene Munster, an analyst at Piper Jaffray Cos.

Homebuilders Rally

An S&P index of homebuilders rose 2 percent to the highest level since August 2007 as sales of existing American homes rose more than forecast and KB Home (KBH) reported an unexpected profit. KB Home, the Los Angeles-based homebuilder that targets first-time buyers, jumped 12 percent to $15.26.

Moody’s Corp. (MCO) increased 4.5 percent to $45.80, completing 18 consecutive days of gains for the longest winning streak since at least 1998. The world’s second-largest provider of credit ratings raised its estimate for full-year earnings on Sept. 12 as demand for its services boosts revenue amid rising global bond sales.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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

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