S&P 500 Posts Worst Weekly Slump This Year on Jobs Data

U.S. stocks fell for the week, sending the Standard & Poor’s 500 Index to the biggest drop this year, as data on jobs, services industries and manufacturing sparked concern the economic recovery may be slowing.

Energy and raw-materials producers declined at least 2.2 percent among 10 S&P 500 groups after commodity prices slumped. Phillips 66 and Tesoro Corp. plunged more than 9.1 percent as refiners (S5OILR) retreated amid a government proposal aimed at cutting the sulfur in gasoline. Hewlett-Packard Co. tumbled 7.8 percent, the most in the Dow Jones Industrial Average. Humana Inc. surged 13 percent, leading gains among medical insurers, after the industry won an increase in a key Medicare payment rate.

The S&P 500 slipped 1 percent to 1,553.28 over the five days, after reaching a record close of 1,570.25 on April 2. The Dow declined 13.29 points, or 0.1 percent, to 14,565.25. The 30- stock gauge capped its worst weekly loss in two months as data showed the nation added less than half the number of jobs economists forecast in March.

“The report confirms that belief that the market has been driven up by monetary policy rather than better fundamentals and therefore the market may well have to digest a slower pace of economic growth from the year on,” David Pearl, who helps manage $27 billion as co-chief investment officer at Epoch Investment Partners Inc. in New York, said in a phone interview.

Economic Reports

Equities fell during the week as reports showed American employers hired the fewest workers in nine months in March, manufacturing expanded less than forecast and a gauge of U.S. service industries fell more than economists’ estimates.

Among global economic reports, a Bank of Japan index showed pessimism among large manufacturers and data on South Korean exports and China factory output trailed forecasts. The BOJ strengthened its stimulus program, while the European Central Bank President Mario Draghi signaled the bank will keep monetary policy loose for an extended period.

The S&P 500 (SPX)’s decline trimmed its gain for the year to 8.9 percent after the index added 10 percent in the first quarter. The gauge has surged 130 percent from a 12-year low in 2009 as companies reported better-than-estimated earnings and the Federal Reserve embarked on three rounds of bond purchases to stimulate the economy.

Alcoa Inc. unofficially kicks off the first-quarter earnings season on April 8. Analysts project profits at S&P 500 companies fell 1.8 percent in the period, the first year-over- year decrease since 2009, according to estimates compiled by Bloomberg. Analysts had predicted a 1.2 percent increase when surveyed in January.

‘Muted’ Expectations

“Expectations are muted,” Jeff Burchell, a fund manager with Toronto-based Aston Hill Financial Inc., which oversees C$6.74 billion ($6.63 billion) in North America, said in a phone interview. “No one is expecting great growth across the board. What we’ll see is OK to good earnings.”

Stocks of companies closely tied to economic growth led the retreat for the week. The Morgan Stanley Cyclical Index fell the most in 10 months, losing 3.3 percent. The Russell 2000 Index (RTY) slumped 3 percent, its biggest slide since June.

The Chicago Board Options Exchange Volatility Index (VIX), which measures the cost of using options as insurance against losses in stocks, jumped 9.6 percent to 13.92. The gauge, known as the VIX, is down 23 percent for the year.

Energy and raw-materials producers tumbled as the S&P GSCI Index of 24 commodities fell for six straight days, the longest streak since May. Oil slumped 4.7 percent, capping its biggest weekly drop in six months.

Halliburton Co., an oil services company, erased 4.5 percent to $38.60 and Chesapeake Energy Corp. declined 3.2 percent to $19.75. U.S. Steel Corp. slid 11 percent to $17.28 and Alcoa retreated 3.3 percent to $8.24.

Refiners Drop

Phillips 66, the largest U.S. independent refiner by revenue since its spinoff from ConocoPhillips last year, dropped 11 percent to $62.31. Tesoro slid 9.1 percent to $53.24.

Refiners in the S&P 500 tumbled 9.2 percent as a group, the worst slump since 2011. The Environmental Protection Agency proposed rules aimed at cutting the sulfur in gasoline. The changes will require an additional $10 billion in infrastructure investment and $2.4 billion in annual operating costs, according to the American Fuel & Petrochemical Manufacturers trade group.

Computer and software makers fell the most among 10 S&P 500 groups, sinking 2.5 percent. Hewlett-Packard tumbled 7.8 percent to $21.97 after an analyst at Goldman Sachs Group Inc. downgraded the shares. The company said Ray Lane is stepping down as chairman and two other directors are leaving in the second board overhaul in two years, underscoring shareholders’ dissatisfaction with the company’s performance.

Apple’s Apology

Apple Inc. (AAPL) slipped 4.4 percent to $423.20. Chief Executive Officer Tim Cook apologized for the company’s iPhone warranty and repair policies in China after receiving criticism from state-run media over customer service in its second-largest market.

F5 Networks Inc. plunged 18 percent to $73.21 for the biggest loss in the S&P 500. The maker of data-management equipment reported preliminary quarterly profit and revenue that missed its forecast as North American sales slowed.

Airlines fell, as the Bloomberg U.S. Airlines Index slumped 8.3 percent, the biggest weekly retreat since July. Delta Air Lines Inc. plunged 13 percent, the most in almost two years, to $14.39, while US Airways Group Inc. lost 7.4 percent to $15.72.

The two carriers during the week blamed congressionally mandated budget cuts for shortfalls in a benchmark revenue gauge in March. JPMorgan Chase & Co. said government spending on air travel probably fell as much as 30 percent in the past month amid so-called sequestration cuts.

Nasdaq’s Acquisition

Nasdaq (NDAQ) OMX Group Inc. dropped 11 percent to $28.76. The second-biggest operator of U.S. equity exchanges agreed to buy eSpeed, an electronic platform for trading U.S. Treasury bonds, for as much as $1.23 billion, depending on sales goals. Moody’s Investors Service and Standard & Poor’s warned Nasdaq’s debt rating may be lowered.

Medical insurers rallied after the Centers for Medicare and Medicaid Services decided to do away with a planned rate reduction. Instead, insurers will receive a 3.3 percent increase in the rate that determines the payments they get for running the government’s Medicare Advantage plans.

UnitedHealth Group Inc. gained 8.6 percent to $62.10, the highest level since 2006. Humana, the second-largest private Medicare insurer, posted its biggest weekly gain since April 2009, adding 13 percent to $78.27.

Best Buy

Best Buy Co. surged 15 percent to $25.45. Samsung Electronics Co., stepping up a battle with Apple, will staff mini-stores at Best Buy’s U.S. locations to showcase how its tablets, smartphones and televisions work together.

Facebook Inc. rose 7.1 percent to $27.39. The company released software that makes it easier to access Facebook features -- such as friends’ photos, messages and status updates -- on a mobile device’s home screen.

While the bull market in U.S. equities entered its fifth year last month, gains have been led by companies whose earnings are less tied to economic swings. Health-care (SPXL1), consumer-staples and utility stocks jumped more than 13 percent among S&P 500 groups so far in 2013. Cyclical stocks, including technology and raw-materials producers, added no more than 1.7 percent as a group.

Cheap Cyclicals

The rally in defensive stocks has driven the price-to- earnings ratio for companies in the three groups to an average 16.9, according to data compiled by Bloomberg. That compared with the S&P 500’s multiple of 15.3 and exceeded the ratio of 14.8 for technology stocks and 15.7 for raw-materials producers, the data show.

Cyclical stocks are now too cheap to pass on, said Epoch Investment’s Pearl. His firm has recently added to holdings in technology, industrial and raw-materials companies.

“Even if the market slows down, the valuation disparity is so great that you could make money owning the economic sensitive stocks because we’re still in a recovery,” he said. “It’s just not a robust recovery.”

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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