S&P 500 retreats from record levels as commodity shares slump

U.S. stocks fell, after the Standard & Poor’s 500 Index (CME:ESM14) climbed to a record last week, as a slump in copper and oil weighed down commodity shares while investors assessed economic data and development in Ukraine.

Freeport-McMoRan Copper & Gold Inc. fell 1.1% as copper futures tumbled amid concern demand will slump in China. Urban Outfitters Inc. dropped 5.1% after saying it remains cautious about its performance in the first quarter. American Eagle Outfitters Inc. lost 6.1%after forecasting results that trailed estimates. McDonald’s Corp. rose 3.2% after an executive said the company may look to cut costs and borrow more cash to return to investors.

The S&P 500 fell 0.3% to 1,871.74 at 1:48 p.m. in New York. The benchmark index closed at an all-time high of 1,878.04 on March 7. The Dow Jones Industrial Average lost 42.76 points, or 0.3%, to 16,375.92 today. Trading in S&P 500 stocks was 18% below the 30-day average at this time of day.

“The equity market is going to make continued progress in a two-steps-forward, one-step-back kind of progression,” Jim Russell, who helps oversee $115 billion as a senior equity strategist for U.S. Bank Wealth Management, said by phone. “We’re still evaluating how much of the economic weakness is weather related and how much of it is legitimate.”

The S&P 500 rallied 4.3% in February after Federal Reserve Chair Janet Yellen said the economy was strong enough to withstand measured reductions to the central bank’s monthly bond purchases. Three rounds of Fed stimulus have helped push the S&P 500 up 177% from a 12-year low, as U.S. equities begin the sixth year of a bull market that started March 9, 2009.

Economic Data

The Fed is trying to determine how much of the recent economic cooling has been due to weather. U.S. employers added more workers than estimated in February, a Labor Department report showed last week. Other reports indicated manufacturing expanded faster than projected last month, while consumer spending rose more than estimated in January.

The S&P 500 fell less than 0.1% yesterday as a report showed Chinese exports unexpectedly declined last month and Ukraine began military drills.

Commodities shares declined at least 0.6%today, with Freeport-McMoRan dropping 1.1% to $31.07. Copper futures slid as much as 3% to the lowest level since July 2010 as signs of slowing economic growth in China sparked concern that demand will slump.

China growth

China’s credit growth trailed analysts’ estimates in February, the People’s Bank of Chain said yesterday. China had its first onshore bond default after Shanghai Chaori Solar Energy Science & Technology Co., a solar-panel maker, last week failed to make an interest payment.

“People are starting to reevaluate the China demand scenario, not only from economic data, but also from this first ever corporate-debt default inside the country,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said in a telephone interview. “How many more companies out there are going to default?”

Investors also continued to watch the situation in Ukraine. Russia is wresting control of Ukraine’s Crimean peninsula, home to its Black Sea Fleet, sparking the worst crisis between Russia and the West since the Cold War. The European Union told Russia it must switch course in Crimea by next week or risk more sanctions as Ukraine’s deposed president warned of a possible civil war.

Ukraine’s borders

Ukraine’s Interior Minister Arsen Avakov said today the country may mobilize 20,000 people to protect its borders. Ukraine says Russia has almost 19,000 soldiers in Crimea, which holds a referendum on March 16 on whether to secede.

Investors have added $13.1 billion to U.S. equity exchange-traded funds in the past five days and withdrawn $8.2 billion from bond ETFs, data compiled by Bloomberg show. Real-estate stocks absorbed the most money among industry ETFs, taking in $564 million during the past week.

The Chicago Board Options Exchange Volatility Index, a gauge for U.S. stock volatility, rose 0.6%to 14.28. The measure has climbed 4.1% this year.

Eight of 10 main industries in the S&P 500 declined today, with energy companies slipping 1.1% for the biggest loss. Oil prices dropped below $100 a barrel for the first time since Feb. 14 on speculation a government report will show U.S. supplies rose for an eighth week. Exxon Mobil Corp. slid 1.7% to $93.89 and Chevron Corp. lost 1.1% to $114.52.

Urban Outfitters

Urban Outfitters slipped 5.1%to $35.61. Chief Executive Officer Richard Hayne said he expects poor weather to contribute to lower sales and profit margins in the first quarter for its Urban Outfitters-branded shops. The clothing retailer also reported earnings of 59 cents a share for the fourth quarter, beating the average analyst estimate of 54 cents.

American Eagle Outfitters lost 6.1% to $13.34. The teen-apparel retailer seeking a new chief executive officer said it would break even in the current quarter. The average of analysts’ estimates compiled by Bloomberg was for profit of 12 cents a share. Same-store sales will fall by a high single-digit percentage, the company said, a worse performance than the 2.3% decline analysts projected.

General Motors Co. fell 2.9% to $36. The House Energy and Commerce Committee will investigate the response of the carmaker and U.S. regulators to consumer complaints about ignition-switch failures that led to the recall of 1.6 million vehicles and are linked to at least 13 deaths.

McDonald’s Rallies

McDonald’s increased 3.2% to $98.26, for the largest gain in the S&P 500. Chief Financial Officer Pete Bensen said the world’s largest restaurant chain is “actively looking at ways to optimize our capital structure, while maintaining our long-term financial strength.” That includes scrutinizing general and administrative expenses and selling stores to franchisees in countries such as China, South Korea and Taiwan, he said at an investor conference.

J.C. Penney Co. jumped 5.7% to $8.90 after Citigroup Inc. upgraded the shares to buy from neutral, saying the company will meet its revenue and margin forecasts this year. The retailer predicted on Feb. 26 that gross margin will improve and same-store sales will increase by a mid-single digit percentage this year.

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