The retreat in U.S. stocks, led by banks and brokerages, is signaling more losses through the end of the year, a period in which the Standard & Poor’s 500 Index usually performs best, according to Bank of America Corp.
Financial shares have posted the worst return this month among the S&P 500’s 10 industries, dropping 9.9 percent, amid concern Europe’s debt crisis is intensifying. The weakness in the S&P 500’s second-biggest group and the benchmark gauge’s decline below 1,200 suggested the index is at risk of sinking to this year’s intraday low of 1,074.77, said Mary Ann Bartels, Bank of America’s head of U.S. technical and market analysis.
The benchmark index has increased 1.5 percent on average in November and 1.7 percent in December since 1950, the biggest monthly gains, according to Strategas Research Partners. The S&P 500 has slipped 4.8 percent this month after the biggest monthly rally since 1991 stalled near its 200-day moving average at the end of October. The index fell 1.9 percent yesterday, sinking below its 50-day average for the first time in six weeks.
“A seasonal year-end rally will likely turn into a Christmas Bah, Humbug,” Bartels wrote in a note to clients yesterday. She sees a 50 percent chance of “a European meltdown” that would send the S&P 500 to as low as 935.
The weakening pattern in brokerage stocks is bearish for U.S. equities, Bartels said. The NYSE Arca Securities Broker/Dealer Index’s price relative to the S&P 500 slumped to the lowest level since June 2000, according to Bloomberg data. The Broker/Dealer index peaked four months before the S&P 500 made an all-time high in October 2007 and bottomed three months ahead of the benchmark’s 12-year low in March 2009, data show.
“With the Broker/Dealers and banks breaking down, the market just can’t sustain the rally,” Bartels said. Financials as a group make up 13.3 percent of the S&P 500.
© Copyright 2014 Bloomberg News. All rights reserved.