S&P 500 poised for worst week since June on economic concern

THE Standard & Poor's 500 Index is poised for its worst week since June, as business activity unexpectedly contracted in September.
Posted 9/28/12

NEW YORK - U.S. stocks fell, sending the Standard & Poor’s 500 Index toward its worst week since June, as business activity unexpectedly contracted in September and investors awaited results of stress tests on Spanish banks.

Nike Inc., the world’s largest sporting-goods company, slumped 1.2 percent after reporting future orders that trailed estimates as demand sank in China. McDonald’s Corp., the biggest restaurant chain, dropped 2.1 percent after Janney Montgomery Scott LLC cut its recommendation for the shares. Hartford Financial Services Group Inc. advanced 2.4 percent after the insurer agreed to sell a life unit to Prudential Financial Inc.

The S&P 500 retreated 0.6 percent to 1,438.68 at 11:57 a.m. New York time, extending its weekly decline to 1.5 percent. The Dow Jones Industrial Average decreased 71.42 points, or 0.5 percent, to 13,414.55 today. Trading in S&P 500 companies was 4.4 percent below the 30-day average at this time of day.

“We’re seeing data that are consistent with stall speed growth,” said Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York. “It’s disappointing. We wanted to see acceleration. As for Europe, there’s always going to be anxiety. We’ve seen this movie before.”

The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 49.7 this month from 53 in August. Consumer spending in the U.S. barely rose in August after adjusting for inflation, showing the economic expansion is struggling to gain momentum. Confidence among U.S. consumers climbed in September to a four-month high as Americans became less pessimistic about the outlook for the economy.

Stress tests

Today’s stress test results of Spanish banks follow yesterday’s announcement of the 2013 budget, which sent stocks higher. The test conducted by Oliver Wyman on 14 banking groups is a precursor to the formation of a so-called bad bank to which troubled lenders will transfer soured real estate to bolster balance sheets. The results will be out after the market closes in Madrid.

“The focus is back on Europe at this point,” Walter Todd, who oversees about $940 million as chief investment officer of Greenwood Capital in Greenwood, South Carolina, said in a telephone interview. “It’s this ebb and flow of crisis- response-complacency. You get everything fine for a while and then increase in stress.”

The S&P 500 is still on pace for its fourth straight monthly gain, after rallying 2.3 percent so far in September. If history is any guide, October may be another month of gains for stocks. Over the last 20 years, the Dow has risen an average 1.8 percent in October, with positive returns 70 percent of the time, according to data compiled by Bespoke Investment Group.

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