S&P 500 Posts Its Biggest Weekly Decline in Three Months

Feb. 26 (Bloomberg) -- U.S. stocks fell, driving the Standard & Poor’s 500 Index to the biggest weekly drop in three months, as Libya’s anti-government uprising pushed oil prices higher and prompted concern economic growth may falter.

Equities pared their weekly decline on Feb. 25 as confidence among American consumers climbed to the highest level in three years. Hewlett-Packard Co. and Wal-Mart Stores Inc. lost more than 6.6 percent in the week after their results missed forecasts. General Electric Co. fell 2.9 percent as industry groups that are more dependent on economic growth led the declines in the S&P 500. Higher oil prices boosted energy shares, which had the only gain among 10 S&P 500 groups.

The S&P 500 fell 1.7 percent to 1,319.88 this past week, the first drop after three straight weeks of gains. The index retreated 2.1 percent on Feb. 22, its biggest one-day drop since Aug. 11. The weekly decline was the largest since a 2.2 percent drop in the five days ended Nov. 12. The Dow Jones Industrial Average dropped 260.80 points, or 2.1 percent, to 12,130.45.

“The events in Libya were the key driver,” said David Joy, chief market strategist at Columbia Management in Boston, which oversees $327 billion. “Investors are afraid that a tightening of oil supplies will lead to extraordinarily higher prices, which will divert spending from other parts of the economy and maybe even force a rethinking of forecasts for global growth going forward.”

Highest Since 2008

The S&P 500 fell after climbing to the highest level since June 2008 on Feb. 18. The decline lowered the gauge’s 2011 advance to 5 percent after a 13 percent rally in 2010, as government stimulus measures and improving profits bolstered investor confidence.

Stocks slipped as Libyan leader Muammar Qaddafi tried to tighten his grip on Tripoli, sending crude oil to its biggest weekly gain in two years on concern the turmoil that has cut Libya’s output may spread to other parts of the Middle East.

Futures in New York surged to a 29-month high on Feb. 24 amid estimates that Libya’s output was cut by as much as two-thirds. Oil retreated below $100 after Saudi Arabia, the U.S. and the International Energy Agency said they can compensate for any Libyan supply disruption and as the U.S. economy grew less than forecast in the fourth quarter. Crude oil for April delivery settled at $97.88 a barrel on the New York Mercantile Exchange Feb. 25.

Oil

Oil prices may surge to $220 a barrel if political unrest in North Africa halts exports from Libya and Algeria, Nomura Holdings Inc. said. Libya, the holder of Africa’s largest oil reserves, is the latest country in the region to be convulsed by protests ignited by the ouster of Tunisia’s president last month and energized by the departure of Egypt’s President Hosni Mubarak on Feb. 11.

Analysts at Morgan Stanley say sharp increases in oil prices pose the biggest threat to growth because consumers suffer a sudden hit to purchasing power. They said an 85 percent to 90 percent increase in the price of oil over a year was followed by U.S. recessions in 1975, 1980, 1990, 2000 and 2008.

The Chicago Board Options Exchange Volatility Index, or VIX, jumped 17 percent for the biggest advance since the week that ended Jan. 21. It posted the biggest one-day jump in nine months on Feb. 22 as investors bid up the price of options insurance against losses in the S&P 500 amid escalating violence in Libya. The VIX has averaged 17.35 this year.

GE, Transportation

Gauges of industrial companies, materials producers, corporations reliant on discretionary spending by consumers and financial stocks slumped the most among 10 groups in the S&P 500, declining at least 2.3 percent.

GE retreated 2.9 percent to $20.82. U.S. Steel Corp., the country’s largest producer of the metal by volume, decreased 8.2 percent to $56.76, while Sears Holdings Corp., the largest U.S. department store chain, lost 11 percent to $83.10.

A gauge of transportation companies in the S&P 500 fell 4.3 percent, the most within 24 industries in the benchmark index for U.S. equities. The Dow Jones Transportation Average tumbled 4.5 percent, the most since August, to 5,060.37.

The Thomson Reuters/University of Michigan final index of consumer sentiment for February climbed to 77.5 from 74.2 the prior month, a report yesterday showed. Economists projected the gauge would rise to 75.5, according to the median of 59 forecasts in a Bloomberg News survey.

Economic Growth

The U.S. economy grew at a 2.8 percent annual rate in the fourth quarter, slower than previously calculated and less than forecast as state and local governments made deeper cuts in spending. The revised increase in gross domestic product compares with a 3.2 percent estimate issued last month and a 2.6 percent gain in the third quarter. The economy, excluding inventories, grew at a 6.7 percent pace, the most since 1998, figures from the Commerce Department showed yesterday.

“There’s still more recovery to come,” said Joseph Milano, manager of the T. Rowe Price New America Growth Fund, which oversees about $1.5 billion. “We’re still in the beginning of the rebound, and it’s another reason not to be bearish at this point.”

Fourth-quarter profit exceeded the average analyst estimates at 71 percent of the 456 companies in the S&P 500 that have reported results since Jan. 10, Bloomberg data show. H.J. Heinz Co., the world’s biggest ketchup maker, advanced 4.8 percent this week after projecting its third-quarter profit would beat analysts’ forecasts.

Corporate Earnings

“Earnings continue to come in above expectations,” said Craig Hodges, a fund manager at Dallas-based Hodges Capital Management Inc., which oversees about $750 million. “There are a few hiccups and downtrodden reports because of company specific issues, but overall there’s been more good than bad.”

Hewlett-Packard fell the most in the Dow average, plunging 12 percent to $42.68, its biggest weekly loss since August. The world’s largest maker of personal computers missed analysts’ second-quarter sales and profit estimates, marring Leo Apotheker’s first quarter as chief executive officer. Excluding some costs, second-quarter profit will be as much as $1.21 a share, missing the $1.26 predicted by analysts in a Bloomberg survey. Sales will top out at $31.6 billion, compared with an average estimate of $32.6 billion.

Wal-Mart posted the second-largest drop in the Dow, losing 6.6 percent to $51.75. The largest retailer fell the most in 13 months after posting a seventh straight sales decline at its U.S. stores, short of its own projections for the holiday period. Chief Executive Officer Mike Duke said he was “disappointed” after sales at U.S. stores open at least a year fell 1.8 percent in the quarter ended Jan. 28. He had said in October that U.S. comparable sales would be “positive.”

Only Gain

Energy shares had the only gain in the S&P 500 among 10 industries, rising 1.1 percent as a group.

Chevron Corp., the second-largest U.S. oil company, rose the most in the Dow, climbing 3.4 percent to $102.10. Exxon Mobil Corp., the largest U.S. oil company, rose the third-most in the benchmark gauge, increasing 1 percent to $85.34.

Chesapeake Energy Corp. advanced the most in the S&P 500, rallying 16 percent to $35.37. The most-active U.S. natural-gas driller sold its Arkansas shale gas assets for $4.75 billion in cash to BHP Billiton Ltd. and posted a fourth-quarter profit, excluding unusual gains and losses, of 70 cents a share, beating the average of analyst estimates by 9.4 percent, according to Bloomberg data.

Consumer spending in the U.S. probably climbed in January, boosted by rising prices for everything from food to fuel, economists said before a report next week. Other figures may show manufacturing continued to expand while home sales dropped.

Companies scheduled to report results next week include Staples Inc., H.J. Heinz and Domino’s Pizza Inc.

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

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