NEW YORK: Stocks erased losses in the final 15 minutes of trading on Friday, sending the Standard & Poor’s 500 index to a second weekly gain, as investors bought shares before changes to MSCI Inc. indexes and weighed developments in federal government budget talks.
The S&P 500 rose less than 0.1 percent to 1,416.18. The index rallied as much as 0.2 percent in the final hour of trading, recovering from a decline of as much as 0.3 percent, before paring its gains. The Dow Jones Industrial Average added 3.76 points, or less than 0.1 percent, to 13,025.58.
“A lot of the volatility near today’s close is due to the MSCI rebalance,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said by email. His firm oversees $250 billion. “Outside of that, we’ve been trading solely on political rhetoric in Washington.”
Amendments to indexes can alter share prices as passively managed funds buy and sell stocks to mirror the benchmark indexes.
President Barack Obama warned of “prolonged negotiations” ahead as congressional Republicans dug in on their opposition to his plan to avert the fiscal cliff. House Speaker John Boehner, an Ohio Republican, told reporters in Washington “right now we’re almost nowhere” on talks.
The S&P 500 advanced 0.5 percent this week and rose 0.3 percent for the month. U.S. stocks have swung between gains and losses amid lawmakers’ comments on whether an agreement can be reached to avert more than $600 billion in spending cuts and tax increases scheduled to begin on Jan. 1. The benchmark gauge of U.S. stocks has lost 0.9 percent since the president won re-election on Nov. 6.
“To make inroads, there needs to be a level of compromise from both sides and we have yet to see that,” Edward Painvin, chief investment officer of the Chase Investment Counsel Corp., which oversees $600 million, said by phone from Charlottesville, Va. “This will continue for the next two weeks, but I would expect to see some resolution definitely before Christmas.”
Savita Subramanian, head of U.S. equity strategy at Bank of America Corp. wrote in a note that she expects the market to be in a “better place” by mid-2013, as the equity risk premium gradually declines. She cited a bottoming in China growth, reduced tail risk from Europe and a multistage solution to the fiscal cliff. New York-based Subramanian forecasts the S&P 500 will reach 1,600 at the end of next year on earnings of $110 a share.
U.S. equity funds tracked by EPFR Global attracted more than $10 billion in net inflows during the fourth week of November, their best showing in more than a year, according to the Cambridge, Mass.-based research firm.
Spending by U.S. consumers unexpectedly declined and incomes stagnated in October as Superstorm Sandy kept those in the Northeast from getting to work or from shopping at malls and car dealerships.
Purchases decreased 0.2 percent, the weakest reading since May, after a 0.8 percent gain in the prior month, Commerce Department figures showed. The median estimate of 79 economists surveyed by Bloomberg News called for no change. Incomes were unchanged, held down by a drop in wages caused by Sandy.
“I’m concerned that the fundamentals are starting to roll over,” Douglas Cote of ING U.S. Investment Management said. “I did not like the consumer numbers ... Personal income and personal spending were below consensus.”