U.S. Stocks Fall With Energy Shares Leading as Oil Resumes Slide

Equities, Earnings Await a Push From Retail Sales
  • Banks join commodity shares to weigh on major indexes
  • S&P 500 poised for its worst January decline since 2009

U.S. stocks fell, with declines accelerating in the final hour of trading after crude oil extended its selloff, as equities lost momentum following their first weekly advance this year.

The struggle to climb out of the January hole continued as energy shares in the Standard & Poor’s 500 Index fell the most since August, with Exxon Mobil Corp. and Chevron Corp. losing at least 3.1 percent. Bank of America Corp. had its biggest drop since September as lenders retraced Friday’s rally. McDonald’s Corp. gained after the fast-food giant’s earnings beat analysts’ forecasts. Tyco International Plc surged 12 percent after Johnson Controls Inc. agreed to merge with the company.

The S&P 500 declined 1.6 percent to 1,877.08 at 4 p.m. in New York, erasing three-quarters of a rally Friday that saw the gauge cap the best back-to-back gains in three months. The Dow Jones Industrial Average decreased 208.29 points, or 1.3 percent, to 15,885.22 after nearly erasing its losses in early afternoon trading. The Nasdaq Composite Index slipped 1.6 percent. About 7.9 billion shares traded hands on U.S. exchanges, 5 percent above the three-month average.

“It’s the same old stuff today, the market’s being driven mostly by oil,” said David Donabedian, chief investment officer of Atlantic Trust Private Wealth Management, which oversees about $27 billion. “Even though you’ve got a pretty big M&A deal in the wings here with Johnson Controls and Tyco, the market just did a shoulder shrug. That’s a good indication that macro factors are dominating and there aren’t a lot of animal spirits in the market right now.”

Equities are on track for their worst January since 2009 amid worries that China’s slowdown will weigh on global growth, with plunging oil prices exacerbating those concerns. The S&P 500 sank to a 21-month low last week, and it’s down 8.2 percent this month.

Stocks rose last week, with energy shares helped by a rebound in crude, on bets central banks around the world will act to support the global economy, even as the Federal Reserve tightens policy. European Central Bank President Mario Draghi said today the ECB must fulfill its inflation mandate in order to maintain its credibility. With slumping oil costs weighing on consumer prices that are already close to stagnating, Draghi is trying to convince investors that the central bank remains willing to act if needed.

The Fed begins a two-day meeting tomorrow. The S&P 500 has lost 9.5 percent since the central bank raised interest rates last month for the first time since 2006. The probability of a rate increase this week has stayed low after the December liftoff, and chances of a March boost have fallen to one-in-four from even odds at the start of the year.

In addition to the Fed meeting, investors are watching corporate earnings results for a read on the strength of the U.S. economy as the reporting season picks up pace. Procter & Gamble Co., 3M Co., Apple Inc., Boeing Co. and Facebook Inc. are among more than 130 S&P 500 companies releasing results this week.

Earnings Watch

Analysts estimate profit at firms in the index fell 6.3 percent in the fourth quarter, better than predictions a week earlier calling for a 7 percent slump. Of those that have already posted results, 78 percent beat earnings projections while 47 percent exceeded sales forecasts.

Investors will also be assessing economic data this week, including reports on consumer confidence, home sales, durable goods orders and the first look at fourth-quarter growth. Economists surveyed by Bloomberg forecast gross domestic product rose 0.8 percent last quarter, after a 2 percent gain in the prior three months.

The Chicago Board Options Exchange Volatility Index rose 8.1 percent today to 24.15, reversing nearly half of a 17 percent drop last week. The measure of market turbulence known as the VIX remains on track for its biggest monthly gain since August.

All of the S&P 500’s 10 main groups fell, led by declines of more than 3.2 percent in energy and raw-material companies. Material stocks are down 14 percent this year, making them the worst-performing group in the gauge. Financial companies lost 2.3 percent Monday, with banks sinking to their lowest in more than two years.

Late Volatility

“In general, the market continues to be concerned about the issues that have been on the minds of investors all year, namely the potential of slowing economic global growth,” said John Carey, a Boston-based fund manager at Pioneer Investment Management Inc., which oversees about $230 billion. “I’ve noticed that pattern of end-of-day volatility, and wonder if there are programs that kick in at the end of the day that contribute to that. It’s been quite conspicuous.”

Energy producers slumped 4.5 percent as oil prices settled near session lows. Saudi Arabia, the world’s biggest crude exporter, said low prices won’t reduce its spending on energy projects. Chesapeake Energy Corp. lost 16 percent, its biggest one-day drop in seven years, and Ensco Plc. declined 7.4 percent to its lowest since 1999. West Texas Intermediate crude futures lost 5.8 percent to $30.34 a barrel.

Containerboard companies were the worst performers among raw-materials stocks after industry trade journals reported the first price decline since 2009 for linerboards, while analysts at Citigroup Inc. and Macquarie Capital Inc. downgraded companies in the industry. Westrock Co. tumbled 15 percent, the most since the completed merger between RockTenn and MeadWestvaco in June. International Paper Co. fell to a three-year low and KapStone Paper and Packaging Corp. slumped 21 percent, the most ever.

Banks Tumble

Zions Bancorporation and Fifth Third Bancorp fell more than 5.2 percent, among the most in the financial group, with both at three-year lows. The KBW Bank Index dropped the most since Sept. 1 to the lowest level in 31 months. Goldman Sachs Group Inc. was the day’s second-worst performer in the Dow, falling 3.7 percent.

Caterpillar Inc. was the biggest drag on industrial shares, down 5 percent which would be the most in four months. Goldman Sachs downgraded the shares to sell from neutral, citing in part excess machinery capacity amid a slowdown in global infrastructure spending. United Technologies Corp., due to report earnings on Wednesday, fell 1.7 percent.

McDonald’s reached a three-week high after ts best quarterly growth in almost four years following a move to serve breakfast all day helped fuel U.S. sales. Profit also topped predictions, raising optimism that Chief Executive Steve Easterbrook can pull the fast-food giant out of its worst slump in more than a decade.

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