• April doesn't live up to history of best-returning month
  • Apple's losses contribute 28 percent of weekly slump

A disastrous stretch for Apple Inc. spread misery through the market and sent the S&P 500 Index to its worst weekly drop since the start of February.

Fatigue was felt in what had been a steady march higher for benchmark indexes as the seven-year bull market in stocks passed into history as the second-longest ever. Apple plunged 11 percent on the week, extending a slump for computer and software makers to seven days, and U.S. equities capped the weakest April since 2012.

“Apple’s pullback is something that’s going to have longer-term implications. We’ve been trading the market on growth for the past couple of years and to see that kind of shift is to say that even the highest flyers can stumble,” said Brad McMillan, chief investment officer of Commonwealth Financial Network in Waltham, Massachusetts, which oversees $100 billion. “That injects a cautionary note for people who expect the high flyers to keep going.”

The S&P 500 fell 1.3 percent during the week to close at 2,065.30, with Apple contributing more than one-quarter of the decline. Even Amazon.com Inc.’s 6.3 percent weekly surge -- its best in nine months -- and Facebook Inc.’s 6.4 percent rally couldn’t lift the broader gauge. Defensive groups led gains: utilities, phone companies and consumer-staples stocks climbed at least 0.7 percent.

Sentiment shifted toward risk-off industries as losses mounted Thursday and Friday, said Eric Green, director of research and senior managing partner at Penn Capital, which has more than $6 billion under management in Philadelphia. “Usually when you have a pullback in the market, those areas are going to do well. But in general, the trade has been to move out of those areas and into cyclicals since mid-February.”

Even with the biggest two-day loss in almost three months to end the week, the S&P 500 has retraced less than one-quarter of the 15 percent rally that began on Feb. 11, with banks, mining companies and energy producers up more than 18 percent over the stretch. While the Commerce Department said U.S. gross domestic product grew at its weakest rate in two years in the first quarter, economists expect it to pick up in coming periods.

Green said he and his colleagues are adding to positions that will benefit should that happen, citing stabilization in oil and other commodity prices, which capped the best monthly gain since 2010 amid gains in natural gas, copper and cotton. 

Crude surged the most in a year this month, helping push shares of energy producers to the strongest two-month rally since 2011. Meanwhile, raw-materials companies capped a three-month run totaling almost 21 percent.

After trading almost tick-for-tick with oil, equity investors are looking elsewhere now, namely to quarterly results, said Tom Wilson, senior investment manager and managing director of wealth advisory at Brinker Capital Inc. in Berwyn, Pennsylvania, which oversees $18 billion.

First-quarter earnings have reflected an overall economy that’s “not bad, but not real good, either,” Wilson said. The Federal Reserve seemed to echo that sentiment when it signaled on April 27 that it would keep rates lower for longer amid signs of tepid growth, tacitly indicating risks to financial markets had eased.

Among the 311 companies in the S&P 500 that reported earnings through Friday, only 58 -- about 19 percent -- missed the consensus of analysts’ estimates, according to data compiled by Bloomberg News. That compares with 22 percent in the year-ago period.

Disappointing results from Apple, Microsoft Corp. and Google’s parent Alphabet Inc. obfuscated broader positive trends, with bottom-line beats excluding those companies running at 8 percent, Jonathan Golub, chief equity strategist at RBC Capital Markets, wrote Friday in a report.

Other reasons to be optimistic? Financial stocks posted a second month of gains on the heels of positive earnings reports, said Michael Sheldon, chief investment officer of Northstar Wealth Partners, which oversees $1.1 billion in West Hartford, Connecticut. In addition, the S&P 500 didn’t fall below either its 50- or 200-day moving averages and remains above a key support level of 1,950, he said.

While the late-month market weakness saw the CBOE Volatility Index jump 14 percent in the final two days, the measure of turbulence averaged 14.28 in April, the lowest since May.

Even so, April didn’t live up to its historical reputation of being the strongest month for equity returns. While the S&P 500 got within 30 points of its all-time high on April 20, the gauge’s price-earnings ratio is about 15 percent above its five-year monthly average. In the absence of more robust economic or company results, the high cost of equities also has been a drag on the overall market, Wilson said.

“That April’s not up as much as it’s historically been is not too surprising given the valuation backdrop,” he said.

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