U.S. Stocks Decline Amid Concern Over Stalled Budget Cut Talks
U.S. stocks slumped, giving the Standard & Poor’s 500 Index its longest losing streak since September, after lawmakers failed to agree on budget cuts and Moody’s Investors Service warned of France’s fiscal challenges.
Bank of America Corp. (BAC) and Citigroup Inc. (C) slid at least 3.2 percent following losses in European lenders. Alcoa Inc. (AA) and Halliburton Co. (HAL) declined more than 1.5 percent as commodities sank. Walgreen Co. (WAG), the largest U.S. drugstore chain, lost 2.7 percent as Morgan Stanley (MS) cut its rating. Gilead Sciences Inc. tumbled 10 percent after agreeing to buy Pharmasset (VRUS) Inc. for about $11 billion in cash. Pharmasset soared 85 percent.
The S&P 500 dropped 2 percent to 1,191.02 at 10:20 a.m. New York time. The benchmark gauge has lost 5.3 percent in four days. The Dow Jones Industrial Average declined 238.63 points, or 2 percent, to 11,557.53 today after a Democratic aide said the supercommittee that was supposed to dissolve congressional gridlock in Washington is instead on the brink of failure.
“You’re looking at a potential double whammy,” Barry Knapp, the New York-based head of U.S. equity strategy at Barclays Plc, said in a telephone interview. “The bigger problem is that a deal in the supercommittee was expected to pave the way to extend the stimulus that is in the system. If you don’t get a deal, which is probable, you get a big hit to the economy in the first quarter right at the point when the economic fallout from the European debt crisis is hitting.”
The decline pushed the S&P 500 below levels (SPX) representing the top of a price range that prevailed in the two months after the U.S. was stripped of its AAA credit rating by S&P on Aug. 5. Rallies after the downgrade brought the S&P 500 to closing highs of 1,204.49 on Aug. 15, 1,218.89 on Aug. 31 and 1,216.01 on Sept. 16, according to data compiled by Bloomberg.
Today is the deadline for the Congressional Budget Office to receive information for scoring a proposal in advance of the supercommittee’s Nov. 23 target date for reaching a deal. The 12-member bipartisan supercommittee likely will announce today that it can’t reach agreement on deficit savings, according to a Democratic aide.
“Failure to reach agreement on at least the minimum required savings will reflect poorly on Congress,” David Kostin, a strategist at New York-based Goldman Sachs Group Inc., wrote in a report to clients dated Nov. 18. “It would showcase the inability of elected officials to act in the long-term best interests of all Americans.” Kostin said that may drive the S&P 500 down to 1,100.
France’s rising financing costs are increasing the nation’s fiscal challenges, according to report issued by Moody’s. Germany’s Finance Ministry said the country’s expansion is “noticeably slower” this quarter.
“The global selloff in risk assets reflects concerns about the inability of policy makers to catch up with unsettling economic and financial realities, particularly in Europe and America,” Mohamed A. El-Erian, the chief executive officer at Pacific Investment Management Co. in Newport Beach, California, said in an e-mail. “The selloff is amplified by growing strains in the underlying functioning of markets.”
Equities slumped last week as higher government bond yields in Spain, France and Italy spurred concern the European debt crisis is intensifying outside Greece. Financial stocks in the S&P 500 slumped 5.6 percent last week, the biggest drop among 10 industries (SPXL1), after Fitch Ratings said further contagion from Europe’s debt turmoil would be a risk for U.S. banks.
Financial stocks in the S&P 500 fell today as a gauge of European lenders dropped 2.9 percent. Bank of America declined 3.5 percent to $5.58. Citigroup decreased 5.3 percent to $24.89.
Energy and raw-material producers sank as the dollar rose, reducing the appeal of commodities as alternative investments. Alcoa retreated 3.3 percent to $9.37. Halliburton erased 4.2 percent to $34.45.
Walgreen dropped 2.7 percent to $31.74 after being cut to “underweight” at Morgan Stanley, which cited significant earnings uncertainty.
Pharmasset soared 85 percent to $134.32. Gilead Sciences, the world’s largest maker of HIV medicines, agreed to buy Pharmasset, betting that its experimental hepatitis C treatments will lead the next generation of therapies in a market that may reach $20 billion by 2020. Gilead Sciences (GILD) slid 10 percent to $35.77.
A gauge of homebuilders in S&P indexes sank 2.6 percent even after a report showed that sales of previously owned homes in the U.S. unexpectedly rose in October.
RIM, Barton Biggs
Research In Motion Ltd. (RIM) fell 6.4 percent to $17.03 after analysts at RBC Capital Markets and JMP Securities LLC cut their profit estimates, citing increased competition, and the smartphone maker said some customers couldn’t turn on their BlackBerry Bold devices.
Barton Biggs, the hedge fund manager who reduced U.S. equity investments in September before the biggest monthly rally since 1991, cut bullish bets again on concern the odds of a U.S. recession have increased.
The Traxis Global Equity Macro Fund’s net long position has been lowered to less than 40 percent, and may be reduced another 15 percentage points, Biggs said during an interview on Bloomberg Television “In the Loop” with Betty Liu today.
“It’s a much more bearish environment than I anticipated,” he said. “We are going to have a decline at least back to the lows of last summer. God forbid, maybe even testing the lows of 2008 and 2009.”
The money manager’s optimism on U.S. stocks has gyrated along with the market. He raised the Traxis Global fund’s long equity position to 65 percent after slashing it to 40 percent in September, he said in an Oct. 17 interview. Biggs then boosted the figure to 80 percent, he said two weeks later. The Standard & Poor’s 500 Index dropped five straight months through September before surging 11 percent in October.
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