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U.S. Stocks Fall on Wal-Mart Forecast, Budget Debate

U.S. stocks fell, after the Dow Jones Industrial Average dropped to the lowest level since June yesterday, as Wal-Mart (WMT) Stores Inc. forecast earnings that missed estimates and lawmakers prepared for budget talks.

Wal-Mart Stores Inc. slid 3.6 percent as the world’s largest retailer forecast earnings that missed estimates. Phone stocks and utilities slumped the most in the Standard & Poor’s 500 Index, slipping more than 0.6 percent. Viacom Inc. (VIAB) increased 2.6 percent after the media company’s earnings topped analyst estimates. NetApp Inc. jumped 11 percent as profit for the second quarter beat forecasts.

The S&P 500 fell 0.2 percent to 1,353.33 at 4 p.m. in New York. The Dow lost 28.57 points, or 0.2 percent, to 12,542.38. Volume for exchange-listed stocks in the U.S. was 7.28 billion shares today, 20 percent above the three-month daily average.

“Wal-Mart is probably the best economic indicator today,” Richard Sichel, who oversees about $1.8 billion as chief investment officer at Philadelphia Trust Co., said in a phone interview. “We have the daily drumbeat from Washington with investors watching, waiting and hoping that something will be resolved on the budget and enough progress will be made to take us to the end of the year without too much volatility.”

Political Showdown

The S&P 500 dropped to the lowest level since July 25 yesterday amid concern about the so-called fiscal cliff debate in Washington and an Israeli air strike on Gaza. The benchmark index has retreated 5.3 percent since President Barack Obama’s re-election set up a budget showdown with the Republican- controlled House of Representatives. The gauge is trading below its average price for the past 200 days, and has lost 7.7 percent from an almost five-year high on Sept. 14.

Obama is negotiating to reach a deficit-reduction deal with Congress to avert $607 billion in automatic tax increases and spending cuts. He will sit down with Democratic and Republican congressional leaders tomorrow for an opening round of negotiations.

About 90 percent of the drop in the S&P 500 since Election Day “can be attributed to concerns about the U.S. fiscal cliff,” Marko Kolanovic, global head of derivatives and quantitative strategy at JPMorgan Chase & Co. in New York, wrote in a report today. More swings today may be because derivatives tied to the equity market expire tomorrow.

Concerns about Washington gridlock overlap with tomorrow’s expiration for options contracts tied to underlying stocks, which “could cause high intraday volatility” as investors and traders buy and sell both derivatives and shares to adjust their positions, Kolanovic said in his analysis.

Missile Attack

Equities also fell as Israeli Defense Minister Ehud Barak signaled that Israel is ready to escalate its military operations against Gaza after at least one long-range missile was fired at Tel Aviv by Palestinian militants. Israel yesterday began a military operation termed Pillar of Defense against militants in the Gaza Strip.

The Federal Reserve Bank of Philadelphia’s general economic index decreased to minus 10.7 in November from 5.7 a month earlier. A reading of zero is the dividing line between expansion and contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. A separate report showed manufacturing in the New York region contracted for a fourth straight month in November as superstorm Sandy knocked out electrical power and limited activity.

Applications for jobless benefits surged by 78,000 to 439,000 in the week ended Nov. 10, the most since April 2011, the Labor Department said. Several states said the increase was due to Sandy, a Labor Department spokesman said.

‘Mixed Bag’

“The economic reports were a mixed bag today, but the market probably doesn’t care about that at the moment,” James Gaul, a portfolio manager at Boston Advisors LLC which oversees about $2.3 billion in assets, said in a phone interview. “We had a steep decline since October and the question is whether we can stabilize here around the 1,350 to 1,358 level. If that happens then we may have a snap-back rally.”

The 14-day relative-strength index for the S&P 500, a gauge of market momentum, slid to 27.7 yesterday, closing below 30 for the first time since June. The last time the RSI slid below that level, which some technical analysts say indicates a so-called oversold situation, the S&P 500 rallied 15 percent over the next three months before reaching its Sept. 14 peak.

Twelve members in the S&P 500 released earnings today. Of companies to have reported third-quarter results so far, 71 percent exceeded analyst profit estimates, while 59 percent missed sales forecasts, according to data compiled by Bloomberg.

Wal-Mart Slumps

Eight out of 10 groups in the S&P 500 declined, with utility and phone companies erasing 0.7 percent and 1.1 percent, respectively.

Wal-Mart dropped 3.6 percent to $68.72. Chief Executive Officer Mike Duke has been reducing prices to lure U.S. shoppers that are still suffering amid sluggish economic growth and 7.9 percent unemployment. Discount chains such as Dollar General Corp. and Dollar Tree Inc. (DLTR) have attracted some of those customers with smaller-format stores that allow for quicker trips and by adding food items.

Target Corp. (TGT) gained 1.7 percent to $62.44. The second- largest U.S. discount retailer said third-quarter profit increased 15 percent as its branded credit cards boosted store sales.

Dollar Tree rose 5.1 percent to $39.70. The company, which sells everything from toys to pet food and cleaning supplies for $1 or less, reported third-quarter earnings that beat analyst estimates and forecast full-year profit of as much as $2.70 a share, more than the average projection of $2.48 in a Bloomberg survey.

Viacom Gains

Viacom increased 2.6 percent to $49.23. The media company that owns the Paramount film studio and cable networks such as Nickelodeon and MTV topped analysts’ profit estimates after cutting expenses and getting more money from pay-TV providers.

NetApp (NTAP) jumped 11 percent to $30.20 after the maker of data- storage products reported second-quarter earnings excluding some items of 51 cents a share. That topped analysts’ average projection of 48 cents, according to Bloomberg data.

The company also announced plans to expand its buyback by $1.5 billion and forecast third-quarter profit of 53 cents to 58 cents a share, compared with a 54-cent average estimate.

Cisco Systems Inc. (CSCO) rose 1.6 percent to $17.94 for the second day of gains. The biggest maker of computer networking equipment rallied 4.8 percent yesterday after its profit topped analysts’ estimates.

Bank of America Corp. (BAC) added 1.1 percent to $9.09. The bank will generate $46.8 billion of extra capital over the next three years that it can spend on dividends and stock buybacks, according to analysts at International Strategy & Investment Group LLC.

Market Pessimism

Pessimism about stocks is at a 15-month high while optimism has fallen to a four-week low, according to a survey from the American Association of Individual Investors.

The proportion of investors who anticipate a decline in the next six months jumped 8.9 percentage points to 48.8 percent in the past week, according to the Chicago-based company, which has tracked individual investors’ projections since 1987. Bullish sentiment, or expectations that stocks will rise over the next six months, slumped 9.7 percentage points to 28.8 percent, the data showed.

“Combine this with a very oversold market and we’re close to a short term bounce,” Peter Boockvar, equity strategist at Miller Tabak & Co. in New York, wrote in a note today.

Technical analysts, who try to predict stock moves based on price and trading patterns, track investor sentiment as a contrarian indicator. They interpret greater optimism as bearish and increased pessimism as bullish.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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