U.S. Stocks Erase Yearly Gain as S&P 500 Moves Least Since 1947

January 02, 2012, 2:39 AM EST By Ksenia Galouchko and Lu Wang

Dec. 31 (Bloomberg) -- U.S. stocks fell this week, leaving the Standard & Poor’s 500 Index virtually unchanged for the year, as concern Europe’s debt crisis will weigh on the economy halted a two-year rally in equities.

The benchmark gauge for U.S. equities lost 0.04 point to 1,257.60 in 2011, the smallest annual change since 1947. Financial shares slid 1.3 percent in the week and 18 percent this year, the worst drop among 10 industries, as Bank of America Corp. tumbled 58 percent. Commodity producers fell 12 percent as a group. First Solar Inc. had the biggest drop in the S&P 500, losing 74 percent, followed by coal producer Alpha Natural Resources Inc. with a 66 percent loss.

Gauges of health-care companies, utilities and makers of household products and other consumer staples climbed more than 10 percent this year as investors bought companies whose profits are least-tied to economic growth. Cabot Oil & Gas Corp. in Houston rose 101 percent in 2011 for the gauge’s biggest rally, followed by pipeline owner El Paso Corp. and Sunnyvale, California-based medical device maker Intuitive Surgical Inc.

“It’s the year I’d like to forget because of all the tumult in the markets,” Brian Jacobsen, who helps oversee $209 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a telephone interview. “The U.S. data has been looking better but it’s not just the matter of the U.S. data but what’s the outlook, and investors are still concerned about whether or not economic recovery is losing steam.”

European Concerns

The S&P 500 fell 0.6 percent this week as Spain’s widening budget deficit and a surge in the European Central Bank’s balance sheet stoked concern over the region’s debt crisis, offsetting better-than-expected U.S. consumer confidence and home sales data. The Dow Jones Industrial Average declined 76.44 points, or 0.6 percent, to 12,217.56, paring its 2011 gain to 5.5 percent.

The S&P 500 finished the year recording record price swings and correlations. The benchmark index started the year with a rally, rising as much as 8.4 percent to a three-year high by the end of April and extending its rebound from a March 2009 bear- market low to 102 percent.

The index tumbled throughout the summer as Congress and President Barack Obama struggled over U.S. deficit cuts, leading S&P to strip the nation of its AAA rating in August, and concern grew that the euro-area’s debt crisis was threatening the global economic recovery. The S&P 500 fell as much as 19 percent from April to its low for the year on Oct. 3.

Rising Correlations

Developments in Europe’s efforts to tame its debt crisis led to near-lockstep movement in equity prices. The 50-day correlation of S&P 500 stocks to gains or losses in the full index increased to a record 0.86 in October, according to data compiled by Westport, Connecticut-based Birinyi Associates Inc. A level of 1 would mean all 500 stocks moved together. Correlation was 0.78 on Dec. 30, 73 percent higher than its average since 1980.

The Dow alternated between gains and losses of more than 400 points on four days for the first time ever in August. Daily share swings in the S&P 500 averaged 2.2 percent that month, the most for any August since 1932, Bloomberg data show. The index moved an average of 1.9 percent a day from May through the end of the year, compared with the 50-year average of 0.6 percent before the collapse of Lehman Brothers Holdings Inc. in 2008.

Fund Withdrawals

Investors have been pulling money from mutual funds that focus on U.S. stocks for a fifth year. Outflows totaled $116 billion in the first 11 months of this year, the highest since 2008, according to data compiled by Bloomberg from the Investment Company Institute, a Washington-based trade group.

U.S. companies have beaten analyst profit estimates for 11 straight quarters as the country climbed out of the worst recession since the Great Depression. Earnings from S&P 500 companies are forecast to reach a record $98.79 a share this year, and climb 9.7 percent in 2012 and 12 percent in 2013, according to analysts’ estimates compiled by Bloomberg.

As stock prices failed to keep up pace with earnings, valuations reached levels cheaper than 72 percent of the time since 1954, according to data compiled by Bloomberg. The S&P 500 ended the year trading at 13.2 times reported earnings, 20 percent below the average multiple of 16.4, the data show.

‘Murky Outlook’

“If you look at balance sheets and cash flow statements, stocks are attractively valued, but they’re not incredibly cheap considering the murky outlook that we have from the political arena,” Jacobsen at Wells Fargo said. “People are clamoring for safer assets, the classic defensive sectors.”

The Morgan Stanley Consumer Index, which tracks drugmakers and food companies, added 0.7 percent this year, compared with a 16 percent loss in the firm’s cyclical measure of commodity producers and transportation providers.

The S&P 500 Dividend Aristocrats index, which follows companies that have raised payout for at least 25 consecutive years, returned 8.3 percent. The S&P 500 ended the year with a dividend yield of 2.1 percent, compared with a rate of 1.88 percent for 10-year Treasuries, and the index returned 2.1 percent in 2011 including reinvested dividends.

Bank of America plunged 58 percent to $5.56 in 2011, making it the worst performer in the Dow, as concern about mounting mortgage losses and a global economic slowdown weighed on the second-biggest U.S. lender. The decline erased almost $80 billion of shareholder value, and was the firm’s largest drop since a 66 percent plunge in 2008, when a U.S. bailout staved off a collapse.

Alcoa, First Solar

Alcoa Inc., largest U.S. aluminum producer, slumped 44 percent to $8.65 this year for the second-worst drop in the Dow as prices of the lightweight metal tumbled 18 percent.

First Solar tumbled 74 percent to $33.76. The biggest manufacturer of thin-film solar cells slashed its sales and profit forecasts for 2011 after ousting Rob Gillette as chief executive.

Alpha Natural declined 66 percent to $20.43 after acquiring Massey Energy Co. for $7.1 billion and announcing earnings that missed analysts’ estimates for the first two quarters of 2011.

Cabot Oil surged 101 percent to $75.90 this year. The company, which has fields in Pennsylvania, Texas and Oklahoma, projected output will rise as much as 55 percent next year. El Paso, based in Houston, rallied 93 percent to $26.57 in 2011 after agreeing to be bought by Kinder Morgan Inc. for $21 billion.

Intuitive Surgical jumped 80 percent to $463.01. The maker of a robotic system to perform surgery reported earnings that beat analyst estimates for the 10th straight quarter, according to data compiled by Bloomberg.

Netflix Inc. dropped 61 percent to $69.29. The video- streaming and DVD subscription service reduced its subscriber forecast and predicted losses in 2012.

--With assistance from Inyoung Hwang and Katia Porzecanski in New York. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

View the original article here

U.S. Stocks Erase Yearly Gain as S&P 500 Moves Least Since 1947

December 31, 2011, 12:23 AM EST By Ksenia Galouchko and Lu Wang

Dec. 30 (Bloomberg) -- U.S. stocks fell this week, leaving the Standard & Poor’s 500 Index virtually unchanged for the year, as concern Europe’s debt crisis will weigh on the economy halted a two-year rally in equities.

The benchmark gauge for U.S. equities lost 0.04 point to 1,257.60 in 2011, the smallest annual change since 1947. Financial shares slid 1.3 percent in the week and 18 percent this year, the worst drop among 10 industries, as Bank of America Corp. tumbled 58 percent. Commodity producers fell 12 percent as a group. First Solar Inc. had the biggest drop in the S&P 500, losing 74 percent, followed by coal producer Alpha Natural Resources Inc. with a 66 percent loss.

Gauges of health-care companies, utilities and makers of household products and other consumer staples climbed more than 10 percent this year as investors bought companies whose profits are least-tied to economic growth. Cabot Oil & Gas Corp. in Houston rose 101 percent in 2011 for the gauge’s biggest rally, followed by pipeline owner El Paso Corp. and Sunnyvale, California-based medical device maker Intuitive Surgical Inc.

“It’s the year I’d like to forget because of all the tumult in the markets,” Brian Jacobsen, who helps oversee $209 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a telephone interview. “The U.S. data has been looking better but it’s not just the matter of the U.S. data but what’s the outlook, and investors are still concerned about whether or not economic recovery is losing steam.”

European Concerns

The S&P 500 fell 0.6 percent this week as Spain’s widening budget deficit and a surge in the European Central Bank’s balance sheet stoked concern over the region’s debt crisis, offsetting better-than-expected U.S. consumer confidence and home sales data. The Dow Jones Industrial Average declined 76.44 points, or 0.6 percent, to 12,217.56, paring its 2011 gain to 5.5 percent.

The S&P 500 finished the year recording record price swings and correlations. The benchmark index started the year with a rally, rising as much as 8.4 percent to a three-year high by the end of April and extending its rebound from a March 2009 bear- market low to 102 percent.

The index tumbled throughout the summer as Congress and President Barack Obama struggled over U.S. deficit cuts, leading S&P to strip the nation of its AAA rating in August, and concern grew that the euro-area’s debt crisis was threatening the global economic recovery. The S&P 500 fell as much as 19 percent from April to its low for the year on Oct. 3.

Rising Correlations

Developments in Europe’s efforts to tame its debt crisis led to near-lockstep movement in equity prices. The 50-day correlation of S&P 500 stocks to gains or losses in the full index increased to a record 0.86 in October, according to data compiled by Westport, Connecticut-based Birinyi Associates Inc. A level of 1 would mean all 500 stocks moved together. Correlation was 0.78 on Dec. 30, 73 percent higher than its average since 1980.

The Dow alternated between gains and losses of more than 400 points on four days for the first time ever in August. Daily share swings in the S&P 500 averaged 2.2 percent that month, the most for any August since 1932, Bloomberg data show. The index moved an average of 1.9 percent a day from May through the end of the year, compared with the 50-year average of 0.6 percent before the collapse of Lehman Brothers Holdings Inc. in 2008.

Fund Withdrawals

Investors have been pulling money from mutual funds that focus on U.S. stocks for a fifth year. Outflows totaled $116 billion in the first 11 months of this year, the highest since 2008, according to data compiled by Bloomberg from the Investment Company Institute, a Washington-based trade group.

U.S. companies have beaten analyst profit estimates for 11 straight quarters as the country climbed out of the worst recession since the Great Depression. Earnings from S&P 500 companies are forecast to reach a record $98.79 a share this year, and climb 9.7 percent in 2012 and 12 percent in 2013, according to analysts’ estimates compiled by Bloomberg.

As stock prices failed to keep up pace with earnings, valuations reached levels cheaper than 72 percent of the time since 1954, according to data compiled by Bloomberg. The S&P 500 ended the year trading at 13.2 times reported earnings, 20 percent below the average multiple of 16.4, the data show.

‘Murky Outlook’

“If you look at balance sheets and cash flow statements, stocks are attractively valued, but they’re not incredibly cheap considering the murky outlook that we have from the political arena,” Jacobsen at Wells Fargo said. “People are clamoring for safer assets, the classic defensive sectors.”

The Morgan Stanley Consumer Index, which tracks drugmakers and food companies, added 0.7 percent this year, compared with a 16 percent loss in the firm’s cyclical measure of commodity producers and transportation providers.

The S&P 500 Dividend Aristocrats index, which follows companies that have raised payout for at least 25 consecutive years, returned 8.3 percent. The S&P 500 ended the year with a dividend yield of 2.1 percent, compared with a rate of 1.88 percent for 10-year Treasuries, and the index returned 2.1 percent in 2011 including reinvested dividends.

Bank of America plunged 58 percent to $5.56 in 2011, making it the worst performer in the Dow, as concern about mounting mortgage losses and a global economic slowdown weighed on the second-biggest U.S. lender. The decline erased almost $80 billion of shareholder value, and was the firm’s largest drop since a 66 percent plunge in 2008, when a U.S. bailout staved off a collapse.

Alcoa, First Solar

Alcoa Inc., largest U.S. aluminum producer, slumped 44 percent to $8.65 this year for the second-worst drop in the Dow as prices of the lightweight metal tumbled 18 percent.

First Solar tumbled 74 percent to $33.76. The biggest manufacturer of thin-film solar cells slashed its sales and profit forecasts for 2011 after ousting Rob Gillette as chief executive.

Alpha Natural declined 66 percent to $20.43 after acquiring Massey Energy Co. for $7.1 billion and announcing earnings that missed analysts’ estimates for the first two quarters of 2011.

Cabot Oil surged 101 percent to $75.90 this year. The company, which has fields in Pennsylvania, Texas and Oklahoma, projected output will rise as much as 55 percent next year. El Paso, based in Houston, rallied 93 percent to $26.57 in 2011 after agreeing to be bought by Kinder Morgan Inc. for $21 billion.

Intuitive Surgical jumped 80 percent to $463.01. The maker of a robotic system to perform surgery reported earnings that beat analyst estimates for the 10th straight quarter, according to data compiled by Bloomberg.

Netflix Inc. dropped 61 percent to $69.29. The video- streaming and DVD subscription service reduced its subscriber forecast and predicted losses in 2012.

--With assistance from Inyoung Hwang and Katia Porzecanski in New York. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

View the original article here

Corporate Earnings to Gain Least in Two Years

July 08, 2011, 12:34 AM EDT By Ashley Lutz

July 8 (Bloomberg) -- U.S. corporations are set to report the slowest earnings gain since the recession ended as companies from Ford Motor Co. to McDonald’s Corp. struggled with rising oil and commodity prices and a slowdown in consumer confidence that may continue to hamper spending this year.

Earnings per share for all Standard & Poor’s 500 Index companies rose 13 percent in the second quarter, according to analysts’ estimates compiled by Bloomberg. Profits gained 18 percent in the first quarter after jumping 37 percent in 2010.

“We aren’t going to see the dramatic increase we’ve seen in some quarters,” said John Carey, who helps manage $260 billion for Pioneer Investment Management Inc. in Boston. “Consumer spending got hammered a bit because of higher oil prices and we have also seen a drop in consumer confidence, which maybe hurt numbers.”

While rising oil prices likely boosted profit at Exxon Mobil Corp. and Chevron Corp. to their highest levels in almost three years, they led to increasing costs at retailers such as Wal-Mart Stores Inc., airlines and carmakers worldwide.

Evidence of a slowdown is also building outside of the U.S. Earnings in the Stoxx 600 Europe Index may rise 21 percent this year, after gaining 63 percent in 2010, according to Bloomberg data. A construction slump and weaker consumer spending hurt sales at Amsterdam-based Royal Philips Electronics NV, the world’s biggest maker of light bulbs, and U.K. shoppers facing government spending cuts are restraining purchases.

Oil Prices Down

Some of the factors that contributed to the slowdown last quarter have waned, including the impact of the March 11 earthquake and tsunami in Japan, which likely caused losses at Sony Corp. and Toyota Motor Corp. Gasoline prices have come down, with U.S. retail fuel costs dropping 10 percent on July 6 from $3.99 per gallon in May, the highest since July 2008, according to figures from AAA, the nation’s largest auto club.

The gain in earnings at S&P companies in the second quarter was the slowest since the third quarter of 2009, according to Bloomberg data. Profits may rise 19 percent this year and 14 percent in 2012, according to the data.

“Because this recovery is slow and steady it may last longer than some in the past,” Carey said.

Expectations may still be too high in the U.S. in an environment where the economy is slowing, said Jack Ablin, chief investment officer for Chicago-based Harris Private Bank, which oversees $60 billion.

“My biggest concern is that companies continue to expect wider margin expansion throughout the rest of the year,” Ablin said. “I see a difficult path for margins from now to the end of the year.”

Ford, GM

Ford, based in Dearborn, Michigan, is predicted to post a 19 percent decline in profit to $2.15 billion, excluding some items, as sales dropped 8.5 percent to $32.1 billion, according to analysts’ estimates compiled by Bloomberg. General Motors Co., based in Detroit, may say profit surged to $2.08 billion on revenue of $36.2 billion, a 9.2 percent gain.

The largest U.S. automakers raised prices and lowered discounts offers to a five-year low in their home market during the quarter. That may have helped offset slower growth in U.S. sales.

“We’re more bullish on pricing than demand,” Itay Michaeli, a New York-based analyst at Citigroup Inc., said in a phone interview. “Because the industry has been more price- disciplined and the U.S. economy has been a bit stagnant, demand could be disappointing in the second half of the year and pricing could be the source of surprise.”

Alcoa, Dow Chemical

Alcoa Inc., the biggest U.S. aluminum producer, is scheduled to be the first member of the Dow Jones Industrial Average to report second-quarter earnings on July 11 after the market closes. Higher aluminum prices may have helped New York- based Alcoa increase earnings to 34 cents a share, from 13 cents a year earlier, according to the average estimate.

Dow Chemical Co., the largest U.S. chemical maker by sales, expanded second-quarter margins for plastics such as polyethylene as prices rose faster than raw-material costs, said Hassan Ahmed, a New York-based analyst at Alembic Global Advisers. Demand in China probably was better than the market expects, he said.

Net income at Midland, Michigan-based Dow advanced 52 percent to 84 cents a share, excluding some items, according to estimates compiled by Bloomberg.

Exxon Mobil, based in Irving, Texas, is predicted to report a 50 percent increase in second-quarter net income to $11.3 billion. Earnings at San Ramon, California-based Chevron may have jumped 32 percent to $7.1 billion. Such profits would be their largest since the third quarter of 2008.

Rising Fuel Demand

Worldwide demand for petroleum to make gasoline, diesel and jet fuel will continue to grow for the rest of 2011, driven by economic expansion in China and India, the International Energy Agency said in a June 16 report. The Paris-based IEA said global crude demand will rise by 1.3 million barrels a day this year, a 1.5 percent increase from 2010.

In Europe, demand for some goods was also damped by tepid consumer confidence and rising oil prices, combined with concerns about the Greek debt crisis.

U.K. retailers are anticipating little improvement in consumer spending for the remainder of the year as shoppers contend with rising fuel prices and government spending cuts.

“Consumer confidence is being affected by the state of the global economy, it’s not something particular to any market,” Tesco Plc Chief Executive Officer Philip Clarke told reporters at the annual general meeting in Nottingham, England, on July 1. “Confidence is lower than it was a year ago, consumers are feeling the pinch, it’s rising fuel prices, it’s rising taxes, it’s uncertainties about employment and that inevitably means it’s tough out there.”

German Companies

Munich-based Siemens AG, Europe’s largest engineering company, last week predicted growth will be tougher to achieve in the second half as the stimulus from an economic rebound peters out.

German carmakers, led by Volkswagen AG, are predicted to be a bright spot, and will probably show profit gains in the quarter. VW’s Audi, Daimler AG’s Mercedes and Bayerische Motoren Werke AG are all targeting record sales this year.

In Japan, the record earthquake damaged factories and a stronger yen eroded overseas earnings.

Toyota, Japan’s biggest carmaker, may report a net loss of 85 billion yen ($1.1 billion) in the three months ending June 30, according to the average estimate compiled by Bloomberg. The company reported net income of 190.5 billion yen a year earlier.

Honda Motor Co., the country’s third-biggest automaker, is predicted to post a net loss of 45.8 billion yen, compared with a 272.5 billion yen profit a year earlier.

Soaring Yen

The yen gained 15 percent in 2010 and soared to a postwar high of 76.25 per dollar on March 17. Toyota, which built 55 percent of its cars outside Japan last year, said June 10 the stronger yen may cut profit by 100 billion yen this fiscal year. A stronger yen reduces earnings repatriated from overseas.

“This year’s results won’t match last year’s, when there was a subsidy program, and the drop in sales will be immense,” said Yuuki Sakurai, president at Fukoku Capital Management Inc. in Tokyo. “The high yen is becoming the new normal.”

Tokyo-based Sony may report a loss of 2.5 billion yen, compared with a 25.7 billion yen profit a year earlier, according to the average of estimates compiled by Bloomberg. Japan’s largest consumer-electronics exporter halted operations at 10 plants and two research centers following the earthquake.

Food companies have faced rising prices of staples including sugar, meat and corn over the past year. Restaurants operators including McDonald’s have raised prices to help offset surging commodity costs.

McDonald’s, Wal-Mart

Net income at Oak Brook, Illinois-based McDonald’s may have gained 9 percent last quarter, according to the average of estimates compiled by Bloomberg, after rising 11 percent in the first quarter. In May, U.S. sales at stores open at least 13 months had their slowest monthly growth since February 2010.

Wal-Mart, the world’s largest retailer, is predicted to post a 5 percent gain in second-quarter profit. The Bentonville, Arkansas-based company is expanding abroad to counter sales at U.S. stores open at least a year that have declined for eight consecutive quarters.

United Continental Holdings Inc., Delta Air Lines Inc. and the other four largest U.S. carriers will have a combined profit of about $1.2 billion for the second quarter, according to the average estimates of analysts surveyed by Bloomberg, as higher fares and demand for summer vacation travel overcame a 47 percent jump in jet-fuel prices during the quarter.

Travel ‘Weakness’

Chicago-based United released data on June 23 that showed revenue for each seat flown a mile would rise about 4 percent in June, trailing May’s 15 percent gain. AMR Corp.’s American Airlines posted a unit revenue increase of about 5 percent for the quarter, lagging behind the 7.6 percent estimated by Hunter Keay, a Wolfe Trahan & Co. analyst.

There is a “weakness” in travel to and from Europe, Delta Chief Executive Officer Richard Anderson said in a June 30 interview. The Atlanta-based carrier plans to cut capacity by 4 percent after Labor Day in September and Anderson said he will “continue to look and tweak it and make changes” to the seat- reduction plan if demand doesn’t strengthen.

Some U.S. companies are benefiting from demand in emerging countries.

Intel Corp., the world’s largest semiconductor maker, reiterated in May that its second-quarter predictions for sales and profit margins were “right on,” as increasing orders for server chips used in Internet data centers offset slowing sales of consumer laptop computers. Intel Chief Executive Officer Paul Otellini said analysts underestimated the rising demand for computers in emerging markets such as Brazil that is compensating for weaker demand in Western Europe and the U.S.

Pharmaceutical companies

Earnings at S&P pharmaceutical and biotechnology companies may have risen 1.6 percent from the same period last year, according to estimates compiled by Bloomberg.

A dip in medical procedures that’s lasted more than a year is likely to continue to skew earnings for health companies, said John Sullivan, an analyst with Leerink Swann & Co. in Boston. For drug- and medical-device makers, it’s meant lower sales, he said.

Pharmaceutical companies have tried to offset the decline with job and cost cuts, and the benefits of a weakening U.S. dollar, which made their products less expensive in the rest of the world, Sullivan said.

Pfizer Inc., based in New York, may post an earnings decline of 6.5 percent, to 58 cents a share excluding certain items, according to the average estimate of analysts surveyed by Bloomberg.

--With assistance from Wendy Soong, Devin Banerjee, Natalie Doss, Alex Nussbaum, Matthew Boyle and Greg Bensinger in New York; Craig Trudell in Southfield, Michigan; Alex Kowalski in Washington; Mary Jane Credeur in Atlanta; Mike Lee in Dallas; Julie Johnsson and Joe Carroll in Chicago; Ian King in San Francisco; Richard Weiss in Frankfurt; Sarah Shannon in London; Anna Mukai in Tokyo; Rose Kim in Seoul; Diana ben-Aaron in Helsinki and Chris Reiter in Berlin. Editors: Cecile Daurat, Romaine Bostick

To contact the reporter on this story: Ashley Lutz at alutz8@bloomberg.net;

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net.

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