Feb. 22 (Bloomberg) -- U.S. stocks fell for the week as the Federal Reserve said it likely will continue reducing stimulus, overshadowing optimism about takeovers.
U.S. Steel Corp. dropped 8.2 percent as the Commerce Department rejected its claim that South Korea was selling steel tubing in the U.S. below cost. Coca-Cola Co. and Wal-Mart Stores Inc. slipped at least 3.5 percent after reporting declines in profit. Forest Laboratories Inc. soared 36 percent after Actavis Plc agreed to buy it for about $25 billion. Facebook Inc. rose 2.2 percent on plans to buy mobile-messaging startup WhatsApp Inc. for as much as $19 billion.
The Standard & Poor’s 500 Index fell 0.1 percent to 1,836.25 over the four days, its first weekly decline this month, after rising during the Feb. 19 session to within one point of its record closing level. The Dow Jones Industrial Average decreased 51.09 points, or 0.3 percent, to 16,103.30. The U.S. market was closed Feb. 17 for the Presidents’ Day holiday.
“The market is still trying to gauge the lay of the land,” Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said by phone. “Things are good, they’re just not great. We might see some weakness until there are blue skies for the market. There’s still some clear indecision.”
The S&P 500 has recovered most of its losses following a slump of as much as 5.8 percent from its last record closing level on Jan. 15 after reductions in Fed stimulus fueled an exodus in emerging markets. The rebound has pared the benchmark index’s drop in 2014 to 0.7 percent.
U.S. stocks posted their biggest loss of the week on Feb. 19 after minutes from the Fed’s last policy meeting showed “several” policy makers agreed that, in “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor of continuing to reduce the pace” of the Fed’s bond purchases. Dallas Fed President Richard Fisher said Feb. 21 it’s hard to argue that further expansion of central bank balance sheet has had “much efficacy.”
Investors have dismissed lower-than-forecast economic reports over the past two weeks amid speculation the coldest January since 2011 led to temporary weakness. The Bloomberg ECO U.S. Surprise Index, which measures how much recent data has beaten or missed economists’ estimates, fell to minus 0.429 on Feb. 21, the lowest since August 2011. Investors will get more clues about the state of the economy in the coming week as fourth-quarter gross domestic product data is released.
Among economic reports during the past week, manufacturing in New York, northern New Jersey and southern Connecticut slowed this month. Housing starts in the U.S. slumped in January by the most in almost three years and sales of previously owned homes dropped to the fewest since July 2012. The Conference Board’s index of leading indicators, a gauge of the outlook for the next three to six months, rose 0.3 percent in January and a Markit purchasing managers index showed faster U.S. manufacturing growth.
Fed policy makers plan to change their guidance for the path of interest rates as unemployment declines toward a threshold for considering an increase in borrowing costs, according to minutes of their January meeting. Fed Chair Janet Yellen said Feb. 11 the economy has strengthened enough to withstand continued cuts to monetary stimulus. Three rounds of stimulus have helped push the S&P 500 up as much as 173 percent from a 12-year low in 2009.
“The Fed is not only optimistic about the economy, but more so than what people thought,” Brad McMillan, chief investment officer for Waltham, Massachusetts-based Commonwealth Financial Network, which manages over $71 billion, said by phone. “Even though we’ve seen mixed data, the forward-looking data looks positive. We understand what’s going on and unless something different happens or breaks the mold of what we’re seeing, growth will continue.”
The S&P 500 trades at almost 17 times reported operating earnings, near the highest level since 2010, according to data compiled by Bloomberg. The ratio increased about 20 percent in 2013, the biggest jump in four years, while corporate profits rose 5.6 percent. The index rallied 30 percent last year.
Earnings beat analysts’ estimates at about 74 percent of the 443 companies in the benchmark index that have posted results so far this season, according to data compiled by Bloomberg. Analysts estimate earnings for S&P 500 companies grew by 8.6 percent in the fourth quarter of 2013, a Bloomberg survey released Feb. 21 showed.
Five of 10 main industries in the S&P 500 retreated for the week. Financial shares dropped 0.9 percent as a group and consumer-staples companies slid 0.7 percent to lead declines. Technology companies lost 0.5 percent, while health-care and utility stocks led gains.
U.S. Steel dropped 8.2 percent to $25. The Department of Commerce on Feb. 19 rejected a claim by the nation’s largest steel producer that South Korea is selling steel tubing into the U.S. below cost. A final determination may be made in July, with the U.S. International Trade Commission making a final decision by Aug. 21, the department said in a statement.
Wal-Mart slipped 3.5 percent to $73.12. The world’s largest retailer forecast profit this year that trailed analysts’ estimates as the sluggish U.S. economy and government benefit cuts threaten to restrain sales. Wal-Mart’s fourth-quarter net income fell 21 percent.
Coca-Cola Co. plunged 4.5 percent to $37.18. The world’s largest beverage company announced a $1 billion cost-cutting program as falling soft-drink demand in North America and slowing growth overseas contributed to an 8.4 percent drop in fourth-quarter profit.
Facebook climbed 2.2 percent to $68.59 in the week and reached a record on Feb. 20. The deal for WhatsApp is for $12 billion in stock, $4 billion in cash and $3 billion in restricted shares, according to a statement from Facebook.
The Facebook acquisition was the latest major deal this year, with Comcast Corp.’s $45.2 billion purchase of Time Warner Cable Inc. the biggest. Suntory Holdings Ltd. agreed in January to pay $16 billion for Beam Inc.
Forest soared 36 percent to $96.88 during the week and reached a record on Feb. 20. Forest investors will get cash and stock valued at $89.48 a share, based on the Feb. 14 closing price, the companies said in a statement.
The acquisition will change Actavis’s mix of sales, provide the combined drugmaker with more than $1 billion in cost savings, and bring Forest’s brand-name products to more markets. Actavis climbed 14 percent to $218.41 for its biggest weekly gain since 2008.
Garmin Ltd. advanced 13 percent to $51.97 to end the week at the highest level since 2008. The maker of navigation systems posted fourth-quarter earnings that exceeded estimates and forecast revenue this year of as much as $2.7 billion, higher than analysts predicted.
Tesla Motors Inc. increased 5.7 percent to $209.60. The youngest publicly traded U.S. automaker posted fourth-quarter results that beat analyst estimates. Tesla announced plans to raise Model S sedan production 56 percent this year and to build a massive battery plant.
--Editors: Michael P. Regan, Jeff Sutherland