U.S. stocks fell Friday, as the Standard & Poor's 500 pared its third straight annual gain, after concern over Europe's debt crisis overshadowed optimism that the American economy will expand in 2012.
The S&P 500 fell 5.41 points, or 0.43%, to close at 1,257.61, ending the year almost exactly where it had started. The Dow Jones industrial average slipped 69.48 points, or 0.57%, to 12,217.56, paring its annual gain to 5.5%. The Nasdaq fell 8.59, or 0.33%, to close at 2,605.15, for a decline for the year of 1.8%. All numbers are preliminary.
“Today's another day of worry for Europe and there's some concern Europe hasn't quite gotten their act together yet,” Uri Landesman, who helps oversee more than $1 billion as managing general partner of New York-based hedge fund Platinum Partners LLP, said in a telephone interview. “You would've expected Spain to take it down a little, but today I think would've been an up-day other than that.” (Spain announced its budget deficit will be larger than previously forecast.)
An 11% rally since the end of September has put the S&P 500 on pace for the best fourth quarter since 2003. Both the S&P 500 and the Dow are among the 10 best performers this year among 91 national indexes tracked by Bloomberg. Still, Wall Street strategists' average forecast at the beginning of the year that the S&P 500 would rise to 1,371 in 2011 proved too high, according to a Bloomberg News survey. Forecasters predict the index will advance to 1,348 next year.
The S&P 500 started the year with a rally, rising as much as 8.4% to a three-year high by the end of April and extending its rebound from a March 2009 bear-market low to 102%. The index tumbled throughout the summer as Congress and President Barack Obama struggled over U.S. deficit cuts, and sank further amid concern that Europe's debt crisis was threatening the global economic recovery. The S&P 500 fell as much as 19% from April to its low for the year on Oct. 3.
The S&P 500's price-earnings multiple reached the lowest level in more than two years on Oct. 3, falling to 11.6, a 27% decline from its high in February of 15.8. The measure's average valuation was 14.1 in 2011.
The S&P 500 rose 1.1% Thursday amid further signs of strength in the U.S. economy. Equity futures erased gains on Friday, however, after Spain said its budget deficit will reach 8% of gross domestic product this year, more than the previous forecast of 6%. Luxembourg's Jean-Claude Juncker, who leads the group of eurozone finance ministers, said economic growth in the eurozone “isn't good” and the world economy is growing only in some Asian and African countries.
China's official Xinhua News Agency reported the world's second-largest economy may face “downside pressure” next year, even though growth will be more than 9% in 2011.
“The story of this year is really interesting outperformance of the U.S. equity market vs. everything else,” Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees $1 billion, said in a telephone interview. “If you strip financials and materials out of the U.S., you had a pretty good year.”
Financial shares have fallen the most among the 10 main industries in the S&P 500 this year, losing 18% as a group, followed by a decline of 12% in raw-material producers. Utilities, consumer-staples providers and health-care companies, among stocks considered the least sensitive to economic prospects, rose at least 10% for the top gains.