S&P 500 Falls Most for Week Since ’12 on Emerging Markets

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Photographer: Scott Eells/Bloomberg

A trader works on the floor of the New York Stock Exchange.

U.S. stocks fell for the week, giving benchmark indexes their biggest losses since 2012, as a selloff in emerging-market currencies and signs of weakness in China spurred concern that global growth will slow.

Caterpillar Inc., General Electric Co. and DuPont Co. tumbled more than 5.7 percent to lead declines in the Dow Jones Industrial Average. Cliffs Natural Resources Inc. lost 14 percent as raw-materials producers and industrial companies tumbled more than 3.9 percent. International Business Machines Corp. slid 5.5 percent as revenue declined for a seventh consecutive quarter amid weaker demand for servers. Netflix Inc. (NFLX) surged 17 percent as it projected customer growth that topped analysts’ estimates.

The Standard & Poor’s 500 Index fell 2.6 percent to 1,790.29 over the four trading days, posting its largest decrease since June 2012 and retreating for the second straight week. The Dow lost 579.45 points, or 3.5 percent, to 15,879.11, for its biggest drop since May 2012. Markets were closed on Jan. 20 for the Martin Luther King Jr. Day holiday.

“We’ve got the emerging markets under stress concurrent with a mediocre earnings season and we’re seeing money come out of stocks,” Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said by phone. “That does give pause for concern because it casts some doubt on what the rate of global growth might be this year.”

Equities retreated after emerging-market currencies had their worst selloff in five years as Argentina devalued the peso and the Turkish lira tumbled to a low against the dollar. Investors are losing confidence in some of the biggest developing nations, extending the rout in currencies that began last year when the Federal Reserve signaled it would slow the pace of its monthly bond purchases.

China Manufacturing

Data during the week showed applications for U.S. unemployment benefits held near a six-week low while purchases of previously owned homes climbed less than projected in December. In China, a report indicated factory output may contract this month, based on a preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics.

The International Monetary Fund raised its forecast for global growth this year as expansions in the U.S. and U.K. accelerate. The global economy will grow 3.7 percent this year, compared with an October estimate of 3.6 percent, according to the Jan. 21 report.

Fed officials have been scrutinizing economic data to determine the timing and pace of any reductions to their stimulus. The central bank, which next meets Jan. 28-29, decided at its December meeting to start cutting its monthly bond purchases by $10 billion to $75 billion.

Diverging Indexes

Three rounds of Fed monetary stimulus helped the S&P 500 rise as much as 173 percent from a 12-year low in 2009. The U.S. stock benchmark rallied 30 percent last year, the most since 1997. While the index reached an all-time high of 1,848.38 on Jan. 15, it has slumped 3.1 percent this year. The Dow has lost 4.2 percent so far in 2014.

Investors also scrutinized corporate earnings during the week. Of the 122 companies in the S&P 500 that have released fourth-quarter results so far this season, 74 percent have beaten estimates for profit and 67 percent have exceeded sales projections, according to data compiled by Bloomberg.

The Chicago Board Options Exchange Volatility Index surged 46 percent to 18.14 for the week, the biggest jump since May 2010. The gauge of S&P 500 options known as the VIX has gained 32 percent this year to reach its highest since Oct. 15.

Industrial Shares

All 10 main groups in the S&P 500 retreated as materials producers lost 4.5 percent and industrial stocks declined 4 percent. DuPont fell 6.3 percent to $59.97, GE tumbled 6.1 percent to $24.95 and Caterpillar slid 5.8 percent to $86.17. Cliffs Natural Resources, the biggest U.S. iron-ore producer, plunged 14 percent to $19.33.

“For the U.S multinationals the story has been Asia and emerging markets,” John Fox, director of research at Fenimore Asset Management in Cobleskill, New York, said by phone. The firm oversees about $1.8 billion. “That’s the read-through to U.S. companies.”

Companies whose earnings are most tied to economic swings dropped. The Morgan Stanley Cyclical Index lost 4.1 percent, the most since June 2012. Whirlpool Corp. slumped 7.1 percent to $145.68 and Freeport-McMoRan Copper & Gold Inc. lost 9.5 percent to $32.77.

JPMorgan Chase & Co. erased 5.2 percent to $55.09 and American Express Co. slid 4.4 percent to $86.95, pacing a 3.8 percent drop among financial firms.

IBM Tumbles

IBM dropped 5.5 percent to $179.64. The world’s biggest computer-services provider said revenue declined to $27.7 billion in the three months through December. Profit dropped at the company’s hardware unit partly because of its x86 server business, according to Chief Financial Officer Martin Schroeter. The company agreed to sell the server division for $2.3 billion to Lenovo Group Ltd.

Advanced Micro Devices Inc. slumped 17 percent, the most since October 2012, to $3.47. The maker of processors for personal computers predicted that revenue will be from $1.29 billion to $1.38 billion in the first quarter. The average analyst projection had called for sales of $1.37 billion, according to a Bloomberg survey.

Johnson & Johnson (JNJ) declined 4.7 percent to $90.61 for the largest drop since May 2010. The world’s biggest maker of health-care products forecast 2014 profit of $5.75 to $5.85 a share, excluding one-time items. The outlook was below the $5.86 average of analysts’ estimates compiled by Bloomberg.

American Eagle

American Eagle Outfitters Inc. tumbled 12 percent to $12.77, the lowest level since October 2011. The teen-apparel retailer said Chief Executive Officer Robert Hanson is leaving the company and Executive Chairman Jay Schottenstein will replace him on an interim basis.

Coach Inc. (COH) lost 7.1 percent to $48.81. The largest U.S. luxury handbag maker’s sales at North American stores dropped twice as much as analysts’ estimated during the holiday shopping season. The retailer also reported quarterly profit and revenue that trailed analysts’ projections.

Kansas City Southern slid 14 percent to $99.49. The railroad operator reported fourth-quarter profit that missed analysts’ estimates as energy revenue fell 17 percent due to a decline in coal shipments.

Netflix surged 17 percent to $386.08. The world’s largest subscription streaming service forecast customer growth ahead of analysts’ estimates and said it may charge new users more to share accounts.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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

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