The Standard & Poor’s 500 Index fell for the week as investors sold shares after the biggest annual gain in more than a decade, as an improving economy heightened concern about the Federal Reserve's schedule for ending stimulus.
Apple Inc. slumped 3.4 percent after Wells Fargo & Co. cut its recommendation on the stock. General Motors Co. dropped 3.4 percent on an unexpected decline in December vehicle sales. Bank of America Corp. climbed 4.7 percent as Citigroup Inc. advised investors to buy the lender’s shares. Hertz Global Holdings Inc. rallied 11 percent after adopting a takeover-defense plan amid speculation activist investors were taking stakes.
The S&P 500 declined 0.5 percent to 1,831.37 in the holiday-shortened week, after completing 2013 with a 30 percent gain, the most since 1997. The Dow Jones Industrial Average lost 8.42 points, or 0.1 percent, to 16,469.99 for the week. The U.S. market was closed Jan. 1 for the New Year’s holiday.
“All the data coming in have been consistently positive, but that put pressure on the Fed to increase the pace of tapering,” Doug Cote, chief market strategist at ING U.S. Investment Management in New York, said in a telephone interview. His firm oversees about $200 billion. “It’s the adjustment to that process that’s going to create volatility. You have to be more discerning with your investments. It’s not just a layup.”
The S&P 500, which finished last year at an all-time high, sank the most in three weeks on Jan. 2, snapping a streak of rallies on the first session of the year since 2009. The Dow average climbed 27 percent in 2013 for its best performance since 1995.
Three rounds of Fed stimulus and better-than-forecast corporate earnings have helped the S&P rally as much as 173 percent from a 12-year low in 2009. The Fed announced plans in December to reduce the pace of bond buying amid faster-than-estimated economic growth.
U.S. manufacturing grew in December at the second-fastest pace since April 2011 and housing prices jumped in October by the most in more than seven years, economic data showed over the week. Applications for unemployment benefits declined in the latest week to the lowest level in a month.
Investors will watch the monthly payrolls report, due next week, and corporate earnings to gauge the prospects for the stock market. The Labor Department report on Jan. 10 may show the economy added 195,000 jobs in December, according to the median estimate from economists in a Bloomberg survey.
Alcoa Inc. will unofficially begin the reporting season when it announces results after the markets close on Jan. 9. Analysts forecast earnings for S&P 500 companies grew by 5.2 percent in the fourth quarter, according to data compiled by Bloomberg.
Equity returns will slow this year, Wall Street strategists forecast. The S&P 500 will end 2014 at 1,955, according to the average of 20 estimates compiled by Bloomberg. That represents a 5.8 percent gain from the end of 2013.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, advanced 10 percent to 13.76 for the week. The gauge finished 2013 with a 24 percent drop, the largest decline since 2009.
Eight of 10 main S&P 500 groups retreated for the week, with energy, utility and phone companies dropping at least 1.3 percent to lead declines. Exxon Mobil Corp. lost 2 percent to $99.51 for the worst performance in the Dow.
Apple sank 3.4 percent to $540.98. Wells Fargo analyst Maynard Um cut the rating on the stock to market perform from outperform, saying the iPhone maker’s gross margin could come under pressure later in the year.
General Motors slipped 3.4 percent to $39.57. The largest U.S. automaker said its deliveries of light trucks and cars dropped 6.3 percent in December. Analysts, on average, estimated a 1.5 percent increase.
Bank of America climbed 4.7 percent to $16.41. Keith Horowitz, an analyst with Citigroup, raised the lender to buy from neutral, saying the company will benefit from a recovering economy.
Hertz surged 11 percent to $28.50. The largest publicly traded U.S. rental-car company adopted the plan after observing “unusual and substantial activity” in its stock. The board voted unanimously for the plan, which Hertz said wasn’t adopted in response to any specific takeover bid or proposal to acquire the company, according to a statement.
CNBC reported on Jan. 3 that billionaire Carl Icahn may have acquired 30 million to 40 million shares in the company.
Walt Disney Co. added 2.4 percent to $76.11 for the biggest gain in the Dow. Michael Morris, an analyst with Guggenheim Securities LLC, raised his recommendation on the world’s largest entertainment company to buy from neutral.
Twitter Inc. jumped 8.2 percent to $69. The social-networking company has the potential to become a leading platform for video viewing, Ken Sena, an analyst with Evercore Partners Inc., said in a note. He boosted the stock’s share-price estimate to $70 from $52.
Delta Air Lines Inc. increased 8.1 percent to $29.23 for the biggest gain in the S&P 500. The airline carrier reported that a key revenue metric rose 10 percent in December from a year earlier. The company said it expects to report more than $1 billion in operating cash flow for the quarter.