House Passes Budget to Ease $63 Billion in U.S. Spending Cuts
U.S. Stocks Fall as Budget Negotiations Overshadow Greece
U.S. stocks fell for a second day as concern about progress in Washington budget negotiations overshadowed a European agreement on Greece aid and a better- than-forecast report on durable goods.
Nine of 10 groups in the Standard & Poor’s 500 Index fell. Hewlett-Packard Co. (HPQ) lost 3 percent after Autonomy Corp.’s former chief executive officer challenged the computer maker’s board to explain allegations that the software company falsified financial statements. Seagate Technology Plc (STX) slid 5.1 percent as CLSA Asia-Pacific Markets said the magnitude of the personal- computer slowdown in emerging markets was worse than thought.
The S&P 500 fell 0.5 percent to 1,398.94 in New York. The Dow Jones Industrial Average (INDU) lost 89.24 points, or 0.7 percent, to 12,878.13. More than 5.9 billion shares traded hands on U.S. exchanges, or 2.6 percent below the three-month average at this time of day, according to data compiled by Bloomberg.
“The market remains fixated on what’s going on in Washington,” Frederic Dickson, who helps oversee about $32 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, said in a telephone interview. “The lack of progress in resolving major fiscal cliff issues is topic A and trumping any kind of positive news whether it’s coming out of Europe or positive economic reports.”
U.S. equities extended declines after Senator Majority Leader Harry Reid said “little progress” has been made in talks to avert the so-called fiscal cliff. “We only have a couple weeks to get something done so we have to get away from the happy talk” and do “specific things,” he told reporters.
The S&P 500 has slipped 2.1 percent since Nov. 6 as President Barack Obama’s re-election set up a showdown with the Republican-controlled House of Representatives over the budget. Congress returned from the Thanksgiving recess this week, seeking a budget deal to avoid $607 billion of automatic tax increases and spending cuts from kicking in next year.
While Republicans favor raising federal tax revenue by limiting deductions, Democrats have pushed for higher rates on upper-income earners. The Congressional Budget Office has said a failure to avoid the fiscal cliff could lead to a recession and a jobless rate of about 9 percent, compared with the October rate of 7.9 percent.
“It had looked like Washington lawmakers had kissed and made up after the presidential election and while that might still be so, some are reading Mr. Reid’s comments as more work needing to be done,” Larry Peruzzi, senior equity trader at Cabrera Capital Markets LLC in Boston, wrote in an e-mail. “It’s getting close to the witching hour now so not the best thing to hear.”
In Europe, finance ministers cut the rates on loans made under the first bailout of Greece in May 2010. They also suspended interest payments for a decade on lending agreed under the country’s second bailout. The ministers outlined a plan for the Mediterranean nation to buy back its debt at distressed rates. They authorized Greece to receive a 34.4 billion-euro ($44.6 billion) loan installment in December.
“All initiatives decided upon today will bring Greece’s public debt clearly back on a sustainable path,” Luxembourg Prime Minister Jean-Claude Juncker told reporters in Brussels after chairing a 13-hour meeting that ended early today.
Demand for U.S. goods such as machinery and electronics climbed in October by the most in five months. Bookings for non- defense capital goods excluding aircraft, a proxy for future business investment, rose 1.7 percent last month, the Commerce Department reported in Washington. Orders for all durable goods were little changed, beating the median forecast of economists surveyed by Bloomberg that projected a 0.7 percent drop.
Another report showed consumer confidence rose in November to the highest level in more than four years. Home prices climbed in the year ended in September by the most since July 2010.
“With the fiscal cliff, there’s going to be good news, bad news, good news, bad news before it’s all settled,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $85 billion, said in a telephone interview. “You had some favorable news on the European situation with Greece, durable goods orders were a little better-than-expected, and the market didn’t respond to any of that.”
Hewlett-Packard lost 3 percent, the most in the Dow, to $12.36. Mike Lynch, the former CEO of Autonomy, challenged Hewlett-Packard’s board to explain allegations that Autonomy falsified financial statements, leading to an $8.8 billion writedown. Hewlett-Packard rejected the request, saying it has uncovered evidence of improper accounting at Autonomy as part of an “intense” internal investigation.
Seagate slumped 5.1 percent for the biggest decline in the S&P 500 to $25.95. A team led by CLSA’s Nicolas Baratte wrote that the personal-computer market was facing a “perfect storm” of slow economic growth and developed market consumers deferring purchases for Windows 8 and switching to tablets.
Western Digital Corp., which makes disk drives and network products, also fell, losing 3.1 percent to $34.69.
Zions Bancorporation (ZION) slid 3.6 percent to $19.96 after the Treasury Department announced yesterday it intends to conduct auctions over the next several weeks to unload warrant positions in Salt Lake City-based Zions and M&T Bank Corp, two of the largest banks in which it still has equity. The assets were acquired in exchange for bailout funding under the Troubled Asset Relief Program, or TARP.
McMoRan Exploration Co. (MMR) fell 15 percent to $8.18. The oil and gas explorer was cut to sector perform from outperform at the Royal Bank of Canada, meaning that investors should not add to their holdings of the company. McMoRan tumbled 22 percent yesterday after the New Orleans-based company said it hasn’t completed a measurable flow test for its Davy Jones No. 1 well in the Gulf of Mexico, where results were expected this month.
Energy, financial and telephone companies posted the biggest losses out of 10 groups in the S&P 500, falling at least 0.7 percent each. Utility stocks were the only sector to gain, extending their two-day advance to 1.5 percent, the most in more than a month. Utility companies are the only group to have declined this year, losing 4.5 percent.
Corning Inc. (GLW) jumped 6.9 percent, the most since April, to $12.13. The company, which makes the glass used in Apple Inc. (AAPL) and Samsung Electronics Co. devices, cited stronger TV sales in North America and higher demand from the Chinese market ahead of that nation’s New Year holiday. Corning said it now expects its Gorilla Glass product line to generate about $1 billion this year.
Ralcorp Holdings Inc. (RAH) surged 26 percent to $88.80 after ConAgra Foods Inc. (CAG) agreed to acquire the company for about $5 billion, creating one of the largest packaged food businesses in North America and concluding a pursuit that began in March of last year. ConAgra jumped 4.7 percent to $29.63.
Monster Beverage Corp. (MNST) rallied 13 percent to $51.97. The largest U.S. energy drink maker by sales volume rose after Goldman Sachs Group Inc. said a Food and Drug Administration response to questions over the safety of energy drinks was “encouraging.” The FDA is employing the help of outside advisers to determine whether the beverages may cause harm when consumed in excess or by those with pre-existing cardiac conditions, it wrote in a letter released today.
Any regulatory outcome is likely to be “benign,” Judy Hong, an analyst with Goldman Sachs, said in a note.
Las Vegas Sands Corp. (LVS) added 5.3 percent to $46.36. The casino company led by billionaire Sheldon Adelson voted to pay a $2.75-a-share special dividend, its first such distribution, on Dec. 18 to investors of record on Dec. 10, according to a statement yesterday. This month, the company also increased its regular annual dividend by 40 percent to $1.40 a share.
S&P 500 futures pared earlier gains today after Federal Reserve Bank of Dallas President Richard Fisher said he advocates limits on quantitative easing. Fisher said in a speech today in Berlin that the U.S. central bank could “pursue a different course” and announce “a limit as to how much we are going to acquire of treasuries and mortgage-backed securities, say up to a limit of X, up to a point where our balance sheet reaches that.”
He said that could be done “at this next meeting, which would be my preference.” Officials meet Dec. 11-12 to assess whether record accommodation is fueling economic growth and reducing the rate of unemployment. Fisher, who doesn’t vote on policy this year, has been among the most vocal Fed officials against more easing.
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