By Michael Patterson
Dec. 7 (Bloomberg) -- The Standard & Poor's 500 Index fell for the first time in three days as a better-than-expected employment report tempered speculation the Federal Reserve will cut interest rates by 0.5 percentage point next week.
American Express Co. and Capital One Financial Corp. led declines after Merrill Lynch & Co. said consumer spending will slow and reduce earnings at credit card companies. Chevron Corp., the second-largest U.S. fuel producer, and Schlumberger Ltd., the biggest oilfield-services provider, dropped on lower oil prices. Amgen Inc., the biggest biotechnology company, retreated after saying it may revise safety information on its biggest product.
The S&P 500 slipped 2.68, or 0.2 percent, to 1,504.66, limiting its second straight weekly advance. The Nasdaq Composite Index lost 2.87, or 0.1 percent, to 2,706.16. The Dow Jones Industrial Average added 5.69 to 13,625.58, helped by gains in Alcoa Inc. and Boeing Co. on expectations a resilient job market will sustain the economic expansion. About the same number of stocks rose as fell on the New York Stock Exchange.
``People early on in the week thought the 50-point cut was going to be there,'' said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages $6 billion in San Antonio. ``That's why we had that rally. Now it's another question mark.''
Stocks erased early gains as the addition of 94,000 jobs last month prompted traders to reduce bets the Fed will cut interest rates to 4 percent from 4.5 percent at its Dec. 11 policy meeting.
Benchmark indexes climbed this week on speculation a government plan to limit subprime mortgage defaults will boost banks' earnings and ease the housing recession. The S&P 500 increased 1.6 percent this week, pushing its yearly gain to 6.1 percent. The Dow average climbed 1.9 percent this week and is up 9.3 percent on the year. The Nasdaq advanced 1.7 percent this week and gained 12 percent in 2007.
American Express, the third-largest credit-card network, dropped $2.57 to $56.96. Capital One, a Virginia-based credit- card and bank company, lost $2.63 to $49.80. Discover Financial Services, spun off by Morgan Stanley in June, dropped 56 cents to $16.76. Merrill analyst Kenneth Bruce advised selling the shares because lower-than-expected spending will curb loans made by the companies and restrain profit growth.
The odds of a quarter-percentage point cut in the Fed's benchmark lending rate at the December meeting are 76 percent, Fed funds futures contracts indicate. Futures are pricing in a 24 percent chance of a half-point cut to 4 percent, down from 36 percent odds yesterday.
``What you're seeing is a market re-adjusting to what will probably only be a 25 basis-point cut next week,'' said Robert Pavlik, who helps manage $325 million as chief investment officer of Oaktree Asset Management in New York. ``It was in the market's best interest to get a 50 basis-point rate cut.''
Chevron dropped 42 cents to $90.96. Schlumberger slipped $1.70 to $97.19. Crude oil fell the most in a week on speculation U.S. fuel inventories are sufficient to meet demand this winter. The contract for January delivery declined 2.2 percent to $88.28 a barrel in New York.
Amgen dropped $3.05 to $52.10. The company said an advisory panel to the U.S. Food and Drug Administration will meet ``as part of the ongoing review'' of the class of drugs that includes Amgen's anemia medicine Aranesp. Amgen said last week that a preliminary study showed Aranesp may increase the likelihood of death in women with cancer.
Homebuilders Pare Gains
Homebuilders and mortgage companies pared their weekly advances today after analysts said the government's plan to reduce subprime defaults won't have a meaningful effect on home prices or foreclosures.
JPMorgan Chase & Co.'s Michael Rehaut wrote in a research note that this week's surge by builders was ``sparked by misplaced optimism'' and the low point in the U.S. housing market may not come for another three to six months.
Deutsche Bank AG analysts said the government's accord may offer ``fast track'' relief to as few as 90,000 subprime borrowers. The ``fast track'' option, the cornerstone of the plan, offers an automatic five-year interest rate freeze for eligible borrowers to prevent them from defaulting when rates reset higher.
D.R. Horton Inc., the biggest U.S. homebuilder by market value, dropped 26 cents to $13.86, paring its weekly advance to 16 percent. Countrywide Financial Corp., the largest U.S. originator of residential loans, lost 56 cents to $11.54, reducing its weekly gain to 6.7 percent.
Financial shares also declined after yields on commercial paper backed by assets such as mortgages rose at the fastest pace in a least a decade, signaling investors are still retreating from buying debt that may contain subprime mortgage assets.
Citigroup Inc. dropped 4 cents to $34.31. The New York-based bank is the biggest manager of structured investment vehicles, which were set up to make money by selling short-term debt including commercial paper and buying longer-dated and higher- yielding assets such as mortgages.
The Labor Department said the jobless rate remained at 4.7 percent for the third month in a row after the gain of 94,000 jobs. Economists in a Bloomberg survey had expected an increase of 80,000 jobs and an unemployment rate of 4.8 percent.
Alcoa, the world's second-largest aluminum company, gained $1.05 to $36.91. Boeing, the world's second-biggest maker of commercial planes, rose $1.38 to $93.16. United Parcel Service Inc., the world's biggest package-shipping company, increased 34 cents to $74.17.
The S&P 500 has gained 0.2 percent on average during days when the Labor Department's employment report topped economists' forecasts, according to data since 1998 compiled by Bespoke Investment Group LLC. Raw-materials producers posted an average advance of 0.5 percent, the largest rise among 10 industry groups. Telecommunications companies were the worst performers on average, falling 0.1 percent, Bespoke wrote in a research note yesterday.
J.C. Penney Co. climbed $3.08 to $47.92 after Lehman Brothers analysts upgraded the shares to ``overweight,'' saying the third-largest U.S. department store chain's new American Living line of men's, women's and children's clothing will bolster sales growth next year.
Bear Stearns Cos. rose $2.73 to $100.94. Billionaire investor Joseph Lewis raised his stake in the fifth-biggest U.S. securities firm to 8 percent from 7 percent, making him the second-largest shareholder, according to a regulatory filing.
A private report showed consumer confidence dropped more than forecast to the lowest in more than two years in December as fuel costs surged and credit and housing-market woes persisted. The Reuters/University of Michigan preliminary index of consumer sentiment fell to 74.5, the lowest since the October 2005 reading following Hurricane Katrina. The gauge was 76.1 last month.
The Russell 2000 Index, a benchmark for companies with a median market value of $614.5 million, dropped 0.2 percent to 785.52. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, declined 0.1 percent to 15,195.10. Based on its retreat, the value of stocks decreased by $10.3 billion.
Alcoa Inc. (AA US)
American Express Co. (AXP US)
Amgen Inc. (AMGN US)
Bear Stearns Cos. (BSC US)
Boeing Co. (BA US)
Capital One Financial Corp. (COF US)
Chevron Corp. (CVX US)
Citigroup Inc. (C US)
Countrywide Financial Corp. (CFC US)
D.R. Horton Inc. (DHI US)
Discover Financial Services (DFS US)
J.C. Penney Co. (JCP US)
Schlumberger Ltd. (SLB US)
United Parcel Service Inc. (UPS US)