U.S. stocks ended their longest streak of weekly gains in a decade as data on economic growth and manufacturing stoked concern the Federal Reserve may reduce stimulus soon.
Equities rallied on the final session of the week, halting a five-day slide, as better-than-forecast jobs growth spurred speculation the economy may be strong enough to weather a potential reduction in Fed bond purchases. Sears Holdings Corp. and J.C. Penney Co. tumbled more than 20 percent as hedge fund managers reduced stakes in the department-store chains. 3M Co. slipped 3.7 percent as Morgan Stanley recommended selling the shares. Intel Corp. gained 4.1 percent after Citigroup Inc. advised investors to buy the stock.
The S&P 500 slipped less than 0.1 percent to 1,805.09 for the week, halting eight consecutive weeks of gains, the longest stretch in since January 2004. The Dow Jones Industrial Average declined 66.21 points, or 0.4 percent, to 16,020.20.
“The dependency on the Fed is alive and well in the stock market,” Anna Rathbun, director of research for CBIZ Inc’s retirement plan services unit in Cleveland, Ohio, said in a phone interview. Her firm manages about $7 billion. “Investors have been wary of the possibility to Fed tapering, but the employment number has been good enough for investors to finally pay attention to fundamentals.”
Economic reports over the week suggested growth is gaining momentum in the world’s largest economy. The jobless rate fell to a five-year low of 7 percent in November as American employers increased payrolls by 203,000, according to Labor Department figures. Gross domestic product climbed at a 3.6 percent annualized rate in the third quarter, the strongest since the first quarter of 2012, while manufacturing unexpectedly rose last month.
Economists moved up forecasts for the first reduction in Fed stimulus following the jobs report, saying the Federal Open Market Committee may start dialing down $85 billion in monthly bond buying at its Dec. 17-18 gathering rather than wait until January or March.
The S&P 500 has surged 27 percent this year, poised for the best annual gain since 1998, as the Fed refrained from reducing its monthly bond purchases. Three rounds of monetary stimulus from the central bank have helped drive the equity index up 167 percent from a 12-year low in 2009.
At a record high of 1,807.23 on Nov. 27, the S&P 500 traded at about 16.3 times forecast earnings, up 24 percent from the beginning of the year and the highest valuation since December 2009, data compiled by Bloomberg show.
“We came out of an incredibly depreciated market in 2009 and a lot of that has been driven by stocks being cheap,” Omar Aguilar, the San Francisco-based chief investment officer of equities at Charles Schwab Investment Management, said in a phone interview. The firm had $231 billion in assets under management as of Sept. 30. “We’re now at a point where valuations are not as cheap. Going forward, there will need to be more fundamental stories behind them.”
The Chicago Board Options Exchange Volatility Index added 0.7 percent to 13.79 over the week after halting an eight-day rally on the final day. The gauge of S&P 500 options known as the VIX is down 23 percent this year.
Six out of the 10 main S&P 500 industries declined as telephone and consumer-discretionary companies fell more than 0.7 percent for the worst performance.
Sears tumbled 24 percent to $48.09. Edward Lampert, the hedge-fund manager who for the past eight years tried to turn around the retailer, cut his stake to below 50 percent. Separately, Sears said it plans to spin off its Lands’ End Inc. unit, giving investors a piece of a profitable clothing brand.
J.C. Penney plunged 21 percent $8.08. Hedge fund manager J. Kyle Bass said he sold his stake in the struggling retailer. Bass’s Hayman Capital Management LP in September disclosed it owned about 5.2 percent of the stock outstanding at the time.
Separately, the company disclosed that the U.S. Securities and Exchange Commission asked for information about the retailer’s finances, including a stock sale in September that it’s using to fund an attempted turnaround.
Urban Outfitters Inc. declined 7.8 percent to $35.99. The teen-clothing retailer was downgraded to neutral from buy at Sterne, Agee & Leach Inc.
3M, whose products range from Scotch tape to dental braces and Ace bandages, slid 3.7 percent, the most in the Dow, to $128.61. Morgan Stanley cut the stock’s rating to underweight, saying the company’s profit growth may trail its peers in 2014.
Newmont Mining Corp, the second-largest gold producer, tumbled 7.3 percent to $23.02 as the price of the precious metal sank to a five-month low.
Intel climbed 4.1 percent to $24.82 for the biggest gain in the Dow. Citigroup raised its recommendation on the shares to buy from neutral, saying demand for personal computers will benefit the world’s biggest chipmaker.
Tesla Motors Inc. jumped 7.9 percent to $137.36. The carmaker’s Model S, the electric car being investigated for a possible U.S. recall, was cleared of any safety defect in a review by Germany’s transportation regulator.
Forest Laboratories Inc. rallied 11 percent to $56.91, the biggest gain in the S&P 500 and best weekly advance for the stock in five years. The maker of the Alzheimer’s drug Namenda and blood-pressure pill Bystolic announced a $1 billion share-buyback plan and said it plans to cut 500 jobs to reduce costs.