U.S. stocks fell this week, sending the Standard & Poor’s 500 Index to the biggest drop since August, amid concern that Japan’s nuclear crisis and violence in Libya and Bahrain may curb the global economy.
The S&P 500 rose 1.8 percent in the past two days after the Federal Reserve said some banks are strong enough to boost dividends and buybacks, Libya called a cease-fire and FedEx Corp.’s forecast beat estimates. General Electric Co. lost 5.5 percent, leading declines in the Dow Jones Industrial Average. Utilities fell the most in the S&P 500, slumping 4.3 percent, amid speculation Tokyo Electric Power Co.’s struggle to regain control at a nuclear plant will prompt more U.S. oversight.
The S&P 500 retreated 1.9 percent to 1,279.20 this week, and has slumped 3.2 percent since March 4, the biggest two-week decline in seven months. The index plunged 3.6 percent between March 11 and March 16 following the 9-magnitude earthquake that was Japan’s largest on record. It erased its annual gain after being up 6.8 percent year-to-date on Feb. 18. The Dow dropped 185.88 points, or 1.5 percent, to 11,858.52 this week.
“It’s obviously been a pretty dramatic week,” said Jonathan Vyorst, who helps oversee $2.2 billion at Albany, New York-based Paradigm Capital Management Inc. “There’s the potential for a meltdown in Japan, there’s a potential war in Libya, and there’s unrest in Bahrain and Saudi Arabia, so pick your poison.”
The S&P 500 has tumbled 4.8 percent from its 32-month high in February amid concern among investors that Japan’s quake and the uprisings in the Middle East and northern Africa will restrain the global economy.
The Chicago Board Options Exchange Volatility Index, or VIX, which measures the cost of using options to protect against S&P 500 losses, surged 22 percent to 24.44 this week. It completed the biggest three-day jump since May on March 16.
Japan’s Nikkei 225 Stock Average has plunged 10 percent since March 11, the biggest weekly slump since a month after New York-based Lehman Brothers Holdings Inc.’s September 2008 bankruptcy drove the global economy into a tailspin.
Prime Minister Naoto Kan said Japan’s nuclear crisis remained “very grave.” Workers at Tokyo Electric’s tsunami-damaged power plant are battling to cool reactors and spent fuel to avert overheating and explosions that could spew radioactive material into the environment. A meltdown or explosion is unlikely to pose a health risk beyond 50 kilometers (36 miles) of the site, doctors and scientists said.
Libyan leader Muammar Qaddafi’s promise of an immediate cease-fire, even if implemented, falls short of the demands set by the U.S., U.K and France to avert allied military strikes as soon as this weekend. Qaddafi’s credibility was undercut when al-Jazeera said his forces kept advancing on Benghazi, the opposition stronghold. U.S. President Barack Obama said Qaddafi must stop attacks on civilians, halt his advance on Benghazi, and pull back from three other cities.
The S&P 500’s three-day slump through March 16 sent it to the lowest valuation since November of 14.7 times reported earnings. It then jumped 1.8 percent through yesterday. The index had surged 25 percent between Aug. 26, the day before Federal Reserve Chairman Ben S. Bernanke signaled he was prepared to take action to boost the economy, and March 11, the day of the Japanese quake.
“The price action this week reinforces the idea that in healthy uptrends, oversold markets should be bought,” said Christopher Verrone, head of technical analysis at New York-based Strategas Research Partners. “While news flow out of Japan and the Middle East will likely continue to dictate near-term price action, we continue to believe the integrity of the longer-term uptrend remains intact.”
GE, the world’s biggest maker of power-generation equipment and designer of one of the reactors that exploded at a plant north of Tokyo, declined 5.5 percent to $19.25. Babcock & Wilcox Co., which makes nuclear components to support U.S. defense programs, slumped 12 percent to $30.33.
The S&P 500 Utilities Index dropped 4.3 percent, the most among 10 industries in the benchmark gauge. Exelon Corp., owner of the largest group of U.S. nuclear power plants, declined 7.3 percent to $40.03. Entergy Corp. fell 11 percent to $65.64. The second-largest U.S. nuclear reactor operator is subject to the threat of regulatory pushback because it’s seeking to renew licenses for four of its reactors, according to Hugh Wynne, a New York-based analyst for Sanford C. Bernstein & Co.
Aflac Inc., the insurance company that got 76 percent of 2010 revenue from Japan, led declines among the 22 companies in the S&P 500 Insurance Index, which lost 2.7 percent. Aflac declined 8.8 percent to $50.67. Hartford Financial Services Group Inc. dropped 7.6 percent to $25.49.
Coach Inc. and Tiffany & Co., declined on speculation store closures and shortened hours in Japan will reduce sales. Tiffany, the world’s second-largest luxury jewelry retailer, decreased 9.3 percent to $57.29. Coach, the largest U.S. maker of luxury leather handbags, slumped 11 percent to $49.83.
Solar companies rallied as investors bet they may benefit as demand for alternative energy grows following the disaster in Japan. First Solar Inc., the world’s largest manufacturer of thin-film solar modules, advanced 7.1 percent to $149.66.
Energy was the only group among 10 in the S&P 500 the rallied this week, gaining 0.4 percent. Southwestern Energy Co. rose 11 percent to $41.12.
Coal producers advanced after Jefferies Group Inc. said it expects increased demand because of the problems at Tokyo Electric’s facility. Peabody Energy Corp. rose 11 percent to $70.21 for the second-biggest gain in the S&P 500. Consol Energy Inc. jumped third-most, adding 11 percent to $53.93.
Biggest Dow Gain
Caterpillar Inc. rose the most in the Dow, climbing 5 percent to $105.06. The world’s largest construction equipment maker may be among the U.S. companies to benefit as Japan rebuilds, said analysts at Susquehanna Financial Group LLLP.
While FedEx fell 1.6 percent to $89.28 this week, it rallied 3.1 percent on March 17 for the biggest gain in a month after the world’s biggest cargo airline predicted higher profit than analysts estimated.
Pessimism on U.S. stocks rose for the third straight week, according to Investors Intelligence’s analysis of investment newsletters between March 9 and yesterday. About 22 percent of writers were bearish on U.S. stocks, up from 21 percent last week, according to the New Rochelle, New York-based firm, which has examined forecasts in newsletters since 1963.
Nike Inc. sank fourth most in the S&P 500, slipping 11 percent to $77.59. The world’s largest sporting goods company missed the average analyst estimate for the first time in 19 quarters as costs rose.
Intel Corp. slid 4.5 percent to $19.93 after Nomura Holdings Inc. cut its rating to “neutral” from “buy” for the chipmaker, citing weak personal-computer demand. International Business Machines Corp. fell 4 percent to $155.89 after Sanford C. Bernstein & Co. cut its rating on the shares to “market perform” from “outperform.”
Fed policy makers said March 15 that U.S. growth is on a “firmer footing,” employment appears to be “improving gradually” and higher energy prices will have a temporary effect on inflation as they reiterated plans to buy $600 billion of Treasuries through June.
“Growth won’t slow down that much,” said David Dreman, the chairman and managing director of Jersey City, New Jersey-based Dreman Value Management LLC, which oversees about $5.5 billion. “We can have a market that still continues to be positive through the year. This year will continue to be a happy year.”