U.S. stocks fell for the week, sending the Standard & Poor’s 500 Index to its first back-to-back decline since November, as investors speculated the Federal Reserve will consider scaling back stimulus efforts.
Telephone and utility shares helped lead a retreat in companies that offer stable earnings and high dividends as Exelon Corp. and Verizon Communications Inc. tumbled at least 5.7 percent. Financial and technology stocks were the only groups with gains among the S&P 500 (SPX)’s 10 main industries. Bank of America Corp. and Morgan Stanley jumped more than 3 percent as Moody’s Investors Service lifted its outlook for the U.S. banking system. EMC (EMC) Corp. rose 4.7 percent after expanding its share buyback plan and starting a quarterly dividend.
The S&P 500 slipped 1.1 percent to 1,630.74 over the four sessions in the holiday-shortened week, trimming its 2013 gain to 14 percent. The index finished May up 2.1 percent for a seventh straight monthly rally, the longest stretch since September 2009. The Dow Jones Industrial Average lost 187.53 points, or 1.2 percent, to 15,115.57 for the week after hitting an all-time high of 15,409.39 on May 28.
“We’ve had a tremendous run so it’s not unusual to have retrenchment,” Bernard Schoenfeld, the New York-based senior investment strategist at BNY Mellon Wealth Management, which oversees about $188 billion, said in a telephone interview on May 30. “It’s useful to recognize that the reason that people are even considering an early withdrawal of Fed stimulus is that the U.S. economy is doing relatively well.”
Stocks alternated between gains and losses during the week amid speculation about whether the Fed will maintain the current pace of buying $85 billion of debt each month or reduce its purchases. While economic growth was weaker than economists forecast and jobless claims rose, other data showed consumer confidence climbed to the highest level since 2007, home values jumped the most in seven years and business activity rebounded.
Fed officials have been debating whether to expand or taper bond purchases as the economy continues to grow while inflation stays below the central bank’s preferred range. Fed Chairman Ben S. Bernanke has pledged to hold the target interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent.
Three rounds of monetary stimulus from the Fed and better-than-expected corporate earnings have propelled the bull market in U.S. equities into a fifth year and driven the S&P 500 up 141 percent from a 12-year low in 2009.
The Chicago Board Options Exchange Volatility Index (VIX), or VIX, rose 17 percent to 16.30 for the week. The equity volatility gauge, which moves in the opposite direction to the S&P 500 about 80 percent of the time, has surged 44 percent from a six-year low in March.
Concern that slower bond-buying from the Fed will push Treasury yields higher prompted investors to sell shares of telephone and utility stocks, which yield the most in dividends among the 10 main groups in the S&P 500.
While yield-seeking investors drove so-called defensive stocks to among the biggest gains in the S&P 500 in the first four months of the year, they’ve been lagging other industries since then, with utilities, phone companies and consumer-staple companies posting the biggest losses in the second quarter.
The shift into cyclical stocks “is a healthy sign,” Joseph Tanious, a New York-based global market strategist for JPMorgan Funds, which oversees $400 billion, said in a telephone interview. “It’s generally what you should see in a bull market. As more and more people start to have conviction in the U.S. equity market and the rally we’re seeing, I think valuations will ultimately trump the search for income.”
Phone companies, which yield 4.5 percent, plunged 5 percent for the biggest weekly drop in four years. Verizon sank 5.7 percent to $48.48 and AT&T Inc. retreated 4.8 percent to $34.99.
Utilities, which yield 4.1 percent, fell 3.1 percent. A surge of proposed new plants in the nation’s largest wholesale power market caused forward prices to drop. Power companies, which stood to gain from coal plant retirements, are facing more competition from planned natural gas-fueled facilities and imports from neighboring markets.
Exelon tumbled 9.6 percent to $31.34. The largest U.S. operator of nuclear reactors was cut to hold from buy at Deutsche Bank AG. FirstEnergy (FE) Corp. slid 8.5 percent to $39.01. The utility company was cut to neutral from outperform at Credit Suisse Group AG.
An S&P index of homebuilders slipped 5.6 percent for the biggest retreat since February amid rising interest rates. All 11 members fell in the week. Lennar Corp. dropped 8.1 percent to $39.32 and Toll Brothers Inc. fell 7 percent to $34.17.
Financial companies in the S&P 500 rose 0.5 percent as a group. Bank of America, the second-largest U.S. lender by assets, climbed 3.2 percent to $13.66. Morgan Stanley, the biggest financial brokerage, increased 6.4 percent to $25.90 for the biggest increase among financials in the S&P 500.
Moody’s changed its outlook for the U.S. banking system to stable after keeping it negative since 2008, saying that the country’s economy poses less of a threat.
EMC advanced 4.7 percent to $24.76. The world’s biggest maker of storage computers expanded its share buyback plan by $5 billion and started a quarterly dividend to return cash to investors as customers restrain spending.
CME Group Inc. gained 5.3 percent to $67.93. The world’s largest futures exchange said it hired real estate brokers to sell its 16-story New York Mercantile Exchange tower, with plans to potentially lease back a portion of the building and its trading floor.
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