S&P 500 posts biggest monthly drop since May 2012 on Fed, Syria

NEW YORK, Aug 31 — US stocks fell for a third week in four, capping the worst month since May 2012, as lawmakers considered a military strike in Syria and investors weighed economic data to gauge the Federal Reserve’s next move on stimulus.

All 10 main industries in the Standard & Poor’s 500 Index retreated. JPMorgan Chase & Co. and Microsoft Corp. dropped more than 3.4 per cent, to pace declines among large companies. Homebuilders fell 2.9 per cent as a group as industry data pointed to a slowdown in the housing recovery. Salesforce.com Inc. rallied 13 per cent after boosting its full-year forecast.

The S&P 500 lost 1.8 per cent to 1,632.97 for the week, capping a 3.1 per cent slide in August. The Dow Jones Industrial Average fell 200.20 points, or 1.3 per cent, to 14,810.31. US financial markets will be closed on September 2 for the Labour Day holiday.

“The conflict in Syria is casting a pall over the market,” Michelle Clayman, chief investment officer at New Amsterdam Partners in New York, which manages US$2 billion (RM6.57 billion), said in a phone interview. Economic data during the week “is not a horrible backdrop, but it looks as if third-quarter GDP is going to be slow-ish,” she said. “That would support taper-light, rather than a big hawkish move.”

The S&P 500 erased earlier gains on August 26 and posted its biggest drop in nine weeks the following day after Secretary of State John Kerry said the US will hold Syria’s government accountable for allegedly using chemical weapons.

‘High confidence’

President Barack Obama said yesterday he hasn’t made a final decision on his response, and that “in no event” will it involve US troops on the ground in Syria. He spoke after the White House released an assessment saying intelligence agencies have “high confidence” that Syrian President Bashar al-Assad’s forces used chemical weapons in an August 21 attack.

Growing speculation that the Fed will reduce its monthly bond buying has contributed to the S&P 500’s 4.5 per cent decline from a record high on August 2. Minutes of the central bank’s July meeting released August 21 showed policy makers supported stimulus cuts this year if the economy improves.

Three rounds of bond purchases by the Fed and better-than- forecast earnings have helped extend the bull market in US equities to a fifth year, with the S&P 500 surging more than 150 per cent from a 12-year low in 2009.

Volatility, volume

Reports during the week sent mixed signals, with data showing the economy expanded at a faster pace in the second quarter while consumer spending rose less than forecast in July and durable-goods orders dropped.

“When we combine weak economic data with the geopolitical risk, that clearly created volatility in a market that was fairly thin in terms of volume,” Omar Aguilar, the San Francisco-based chief investment officer of equities at Charles Schwab Investment Management, said in a telephone interview. The firm had US$222 billion in assets under management as of June 30.

The Chicago Board Options Exchange Volatility Index, or VIX, surged 22 per cent to 17.01 this week, the highest in two months. The equity volatility gauge is still down 5.6 per cent this year compared with a 15 per cent gain in the S&P 500.

An average of 5.23 billion shares changed hands on US exchanges during the week, 16 per cent below the daily average so far this year, data compiled by Bloomberg show.

Industry groups

Financial, industrial and technology companies fell the most among 10 S&P 500 groups, sinking at least 2.3 per cent in the five days.

The KBW Bank Index tumbled 4.2 per cent, the most since June 2012, as all 24 members retreated. JPMorgan Chase, the largest US lender by assets, slipped 3.4 per cent to US$50.53 while Bank of America Corp. declined 3.1 per cent to US$14.12.

Microsoft slumped 3.9 per cent to US$33.40. The slide erased almost half the gain from the prior week, when the stock rallied after Chief Executive Officer Steve Ballmer said he would retire within 12 months.

The world’s largest software maker told employees this week it will continue a reorganization plan started by Ballmer, seeking to reassure senior managers who are concerned that the search for a successor will derail turnaround efforts.

The S&P Supercomposite Homebuilding index slid 2.9 per cent as industry reports showed residential real-estate prices increased in June at a slower pace and fewer Americans signed contracts in July to buy previously owned homes. PulteGroup Inc. fell 4.2 per cent to US$15.39 while D.R. Horton Inc. lost 4.7 per cent to US$17.85.

Joy, Tyson

Joy Global Inc. dropped 6 per cent to US$49.12. The largest maker of underground mining equipment forecast a decline in sales amid a slowdown in demand growth for metals and coal.

Alcoa Inc., the largest US aluminum producer, lost 4.4 per cent to US$7.70 for the biggest decline in the Dow.

Tyson Foods Inc. plunged 8 per cent to US$28.95. The largest US meat processor was cut to neutral from buy at Bank of America.

Salesforce.com jumped 13 per cent to a record US$49.13. The company forecast third-quarter sales and earnings that topped analysts’ estimates. Customers are seeking the marketing tools Chief Executive Officer Marc Benioff acquired to complement his customer-management software when he paid US$2.5 billion to buy ExactTarget Inc. last month.

Apache Corp. rallied 7.4 per cent to US$85.68 after agreeing to sell a 33 per cent stake in its Egyptian oil and gas business for US$3.1 billion to China Petrochemical Corp., Asia’s largest refiner.

Debt ceiling

Investors head into the holiday weekend anticipating continued political wrangling over the approaching limit on federal spending. The US government is expected to exhaust its ability to borrow funds in mid-October, when it will hit the statutory debt limit, according to an estimate from the Treasury Department.

“September promises to be an important month, as discussions on the US debt situation resurface and as the holiday season ends,” Richard Hunter, head of equities at Hargreaves Lansdown Plc in London, wrote in an e-mail. “As investors roll up their sleeves for the last third of the year, volumes should pick up markedly from the current low levels.” — Bloomberg