U.S. Stocks Drop in Week on Wildest Swings Since 2009

The wildest trading to start a year since 2009 left the Standard & Poor’s 500 Index lower for the week after three straight annual gains of more than 10 percent.

Investors were whipsawed as the S&P 500 had up and down swings of more than 1 percent on three separate days, with an average move of 1.3 percent for the full five days. The volatility stands in contrast to 2014, when the gauge fluctuated 0.53 percent on average each day for the calmest year in U.S. stocks since 2006.

Speculation that central banks will support global growth and signs of strength in the U.S. economy spurred the biggest two-day equities rally in three weeks. That optimism gave way to concern over falling U.S. wages and Europe’s ability to fight low inflation. Looming throughout the week was the selloff in oil and its potential to spoil corporate earnings.

“They talk about the early days of January being a forecast for the year,” Bruce McCain, who helps oversee in excess of $25 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said by phone. “When you look at the trading that we’ve seen -- the rapid shift from worries about what the data mean to at least less worry if not some enthusiasm -- that’s probably a pretty good template for what we’re going to see.”

The S&P 500 lost 0.7 percent to 2,044.81 in the five days for its first back-to-back weekly declines since October. The Dow Jones Industrial Average fell 95.62 points, or 0.5 percent, to 17,737.37.

Volatility Bouts

The broader index tumbled 2.7 percent on the first two days of the week, capping a five-day slide for the worst start to a year since 2008. The gauge rebounded 3 percent in the next two sessions to erase its loss in 2015 before dropping 0.8 percent in the final day.

Strategists are telling equity derivatives clients to prepare for more frequent bouts of volatility as the bull market approaches its seventh year with a gain of about 200 percent in the S&P 500. Deutsche Bank AG, for one, predicts the end of Federal Reserve stimulus and intermittent panic about the rate of global growth will lead to more equity upheaval.

The Chicago Board Options Exchange Volatility Index, the gauge of investor anxiety known as the VIX, rose as much as 12 percent and slid as much as 12 percent, mirroring moves in the equity gauge. The VIX finished the week lower by 1.4 percent.

$48 Oil

The rout in oil prices weighed on the S&P 500 to start the week, as crude sank below $48 for the first time since 2009. Selling spread from the energy industry to the broader equities market amid concern that cuts in capital spending will hurt corporate results.

Caterpillar Inc. declined 4.6 percent and an index of railroad stocks lost 3.8 percent on speculation the crude slump may hurt spending on energy-services equipment and oil transportation.

“Earnings season is kicking off next week and any signs of stress with oil prices turning down is causing investors to be more nervous,” Steven Rees, who helps oversee about $1 trillion as global head of equity strategy at JPMorgan Chase Bank, said via phone. “There’s general anxiety. The overall tone for earnings might be a little more tempered.”

West Texas Intermediate crude ended the week at the lowest in more than five years on growing evidence OPEC won’t pare output to reduce a global supply surplus.

Earnings Season

Schlumberger Ltd., the oil-services firm that plunged 5.2 percent in the five days, is among the S&P 500 companies that will disclose fourth-quarter earnings next week, after Alcoa Inc. unofficially kicks off the reporting season on Jan. 12. Results for companies in the index will show earnings per share grew 2 percent in the period, analysts tracked by Bloomberg estimate.

Stocks broke their five-day slide after minutes from the Fed’s last meeting indicated no change in policy makers’ approach to rates. Optimism in the economy grew as data showed a drop in weekly jobless claims and the best year for consumer confidence since 2007.

The rally got a boost from overseas, where European Central Bank President Mario Draghi said in a letter that central bank stimulus measures may include sovereign-bond buying, while lawmakers in Chancellor Angela Merkel’s party signaled Germany will take a more flexible stance in debt negotiations with Greece.

Europe Concern

The Stoxx 600 Europe erased a gain for the week on the final day of trading on speculation that the ECB’s bond-buying plans won’t be enough to shore up the economy. People familiar with the situation said the central bank is studying models for buying investment-grade assets at amounts less than analysts say is needed.

U.S. equities dropped 0.8 percent on the week’s last day, as concern over Europe and the biggest drop in American wages since 2006 overshadowed better-than-forecast employment growth and a decline in the jobless rate to 5.6 percent in December.

“What we experienced this week was a lot like what we saw in the fourth quarter, which was heightened volatility,” Ron Sanchez, executive vice president and chief investment officer at New York-based Fiduciary Trust Co. International, said by phone. “There’s a lot of uncertainty about global growth and lack thereof and as a result, the volatility we exhibited in late 2014 is here to stay. We have some sorting out to do.”

Equity Movers

Eight of 10 main industries in the S&P 500 declined in the week. Energy shares in the index sank the most, plunging 3.6 percent for a third weekly decline.

Nabors Industries Ltd., Oneok Inc. and Transocean Ltd. retreated at least 11 percent for the biggest losses in the group. Chevron Corp. lost 3.9 percent, while Exxon Mobil Corp. sank 0.8 percent for a third weekly decline.

JPMorgan Chase & Co. sank 5 percent to lead financial shares lower, while Caterpillar’s slide dragged down industrial stocks. Merck & Co. rallied 9.4 percent for the biggest advance in the Dow, while Boston Scientific Corp. surged 11 percent for the best performance in the S&P 500.

“What we saw this week was a lot of nervous Nellies that were worried about anything and everything,” Bob Pavlik, who helps oversee $4.5 billion as chief market strategist at Banyan Partners LLC in New York, said by telephone. “There’s volatility -- let it scare the traders but don’t let it scare the long-term investor. There’s nothing in the overall concerns that has me changing my outlook. This year is going to continue to improve.”

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