Stocks Fall, Commodities Trim Gain on ISM Data, Budget

Photographer: Nelson Ching/Bloomberg

A manufacturing gauge in China rose to a seven-month high in November, data released Dec. 1 showed. Close

A manufacturing gauge in China rose to a seven-month high in November, data released Dec. 1 showed.

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Photographer: Nelson Ching/Bloomberg

A manufacturing gauge in China rose to a seven-month high in November, data released Dec. 1 showed.

U.S. stocks fell, halting a three-day gain, and commodities trimmed an early advance as a contraction in American manufacturing and concern about the budget debate overshadowed optimism on China’s economy. Treasuries and the dollar fell.

The S&P 500 fell 0.5 percent to close at 1,409.46 at 4 p.m. in New York after climbing as much as 0.5 percent. The Stoxx Europe 600 Index pared gains after rising above its highest closing level in 18 months. The S&P GSCI Index of raw materials was up 0.1 percent after rallying 1.1 percent. The Dollar Index slid to a one-month low while 10-year Treasury yields added one basis point to 1.62 percent.

Equities extended losses as House Republicans, rejecting President Barack Obama’s demand for tax rate increases, proposed $1.4 trillion in spending cuts and $800 billion in new revenue by limiting tax breaks and capping deductions for top earners. Benchmark indexes opened higher before erasing gains as the Institute for Supply Management’s manufacturing index unexpectedly fell below 50, the threshold signaling growth.

Today’s manufacturing data “is just a confirmation that the fiscal-cliff concerns are actually affecting decision making at the business level,” Andres Garcia-Amaya, New York-based global market strategist at JPMorgan Chase & Co.’s mutual funds unit, which oversees $400 billion in assets, said in a phone interview. “For that reason, the market obviously doesn’t like it, considering that we probably won’t get an answer either at the last minute prior to the holidays or right before” New Year’s, he said.

Market Movers

The S&P 500 also erased early gains after briefly climbing above 1,421, its average over the past 50 days, a level watched by traders to gauge the market’s trend. The index has closed below its 50-day average since Oct. 19, data compiled by Bloomberg show.

DuPont Co., General Electric Co. and Coca-Cola Co. lost at least 1.4 percent for the biggest declines in the Dow Jones Industrial Average. (INDU) Newmont Mining Corp. declined 3 percent after the largest U.S. gold producer appointed Gary Goldberg to replace Richard O’Brien as chief executive officer.

An index of airlines fell 1.9 percent as Delta Air Lines Inc. slipped 3.8 percent. The company is mulling a bid for Singapore Airlines Ltd.’s stake in Virgin Atlantic Airways Ltd., according to people familiar with the plans who declined to be identified because the matter is private.

Dell Inc. (DELL) added 4.4 percent after Goldman Sachs Group Inc. recommended buying the shares.

Santa Claus

December has been the best month for the S&P 500 since 1950 with an average gain of 1.7 percent, according to the Stock Trader’s Almanac. The stock market may also get a year-end boost from a so-called Santa Claus rally -- an upswing in the last five days of the year and the first two in January, the almanac said.

While JPMorgan Chase & Co.’s chief U.S. equity strategist Thomas Lee told Bloomberg Television today that American equities are in a secular bull market, his counterpart at Wells Fargo & Co. predicted a drop next year. The S&P 500 will fall 1.8 percent to 1,390 by the end of 2013 as global growth slows and policymakers struggle to reach a budget agreement, according to Wells Fargo’s Gina Martin Adams.

Drop Forecast

Adams, who has the lowest projection for the U.S. equity benchmark next year among Wall Street strategists surveyed by Bloomberg, says investors should buy companies that are least- tied to economic growth. The average estimate from eight other forecasters implies a 9.2 percent rally to 1,546 from Nov. 30.

“The U.S. economy is likely to flirt with recession in the near term, as slowing exports and falling investment likely lead to a weaker consumer at the start of 2013,” Adams wrote in a report today. “The market will suffer downward pressure until policymakers act decisively to convince investors that the U.S. debt house is ‘in order’.”

Stocks, bonds, commodities and the dollar all posted monthly gains in November for the second time this year amid optimism central bank stimulus programs are bolstering growth in the world’s biggest economies.

Today’s report showing manufacturing unexpectedly contracted in November for the fourth month signaled factory managers grew more concerned about the potential economic toll stemming from the so-called fiscal cliff. Data may show on Dec. 7 that U.S. payrolls rose by 90,000 last month, the smallest gain since June, as superstorm Sandy forced businesses to close.

‘We’re Nowhere’

Republicans are renewing attempts to use a debt-limit increase to force deeper spending cuts, replicating the 2011 showdown that led to a credit-rating downgrade. Many congressional Republicans see the need to raise the $16.4 trillion limit on public debt in early 2013 as leverage to force President Barack Obama to cut spending. House Republicans view the U.S. budget deficit, which topped $1 trillion in each of the past four years, as a crisis requiring immediate action.

There’s “clearly a chance” that there won’t be an agreement in time to avert the fiscal cliff, House Speaker John Boehner told “Fox News Sunday.” “I would say we’re nowhere, period,” he said.

American companies are supplanting China from the world’s 500 biggest stocks faster than at any time in the past decade, as an improving U.S. economy and investor confidence in free markets overcomes the lure of equities offering twice the profit growth.

Biggest Companies

U.S. corporations led by Apple Inc. and Exxon Mobil Corp. make up 171 of the top 500 with a market capitalization of $10.6 trillion, or 40.3 percent of the total, compared with 159 valued at $8.24 trillion in 2009, data compiled by Bloomberg show. PetroChina Co. and Industrial & Commercial Bank of China Ltd. lead the 24 Chinese firms worth $1.74 trillion qualifying today, down from 34 with a capitalization of $2.19 trillion.

Among European stocks, Cable & Wireless Communications Plc rose 1.2 percent after agreeing to sell its Monaco and Islands unit to Bahrain Telecommunications Co. for $680 million. Colruyt SA slid 1.9 percent after first-half earnings before interest and taxes missed analysts’ estimates.

The Stoxx Europe 600 Index advanced 0.1 percent at the close in London as three stocks rose for every two that fell. The equity benchmark has rallied 18 percent from this year’s low on June 4 as the European Central Bank announced an unlimited bond-buying plan and the Federal Reserve started a third round of asset purchases.

Ten-year Greek bond yields fell below 15 percent for the first time since July 2011 as the nation offered to buy back bonds.

Currencies

The euro strengthened 0.5 percent to $1.3054 and climbed as high as $1.3076, the strongest level since October. The dollar weakened against 11 of 16 major peers, dropping 0.3 percent to 82.27 yen. The Dollar Index (DXY) declined to as low as 79.799, the weakest since Oct. 31.

The Australian dollar dropped versus 15 of 16 major counterparts, sliding 0.6 percent to 0.7982 euro. The Reserve Bank of Australia will return interest rates to a half-century low of 3 percent tomorrow, economists predict, as data today showed manufacturing contracted and retail sales stagnated. New Zealand’s dollar weakened versus most peers after data showed the nation’s terms of trade worsened.

China Data

China’s official Purchasing Managers’ Index was 50.6 in November, while a private gauge of manufacturing climbed to 50.5, separate reports showed. Nine of 16 analysts surveyed over the past two weeks by Bloomberg forecast China will set an economic growth goal of 7.5 percent, unchanged from 2012, in a sign that new leadership headed by Xi Jinping won’t tolerate a bigger slowdown from the lowest target since 2004.

The S&P GSCI Index of commodities trimmed gains after reaching 657.11, the strongest level since Oct. 22. Sugar, natural gas, aluminum and silver rose at least 0.9 percent to lead gains in 15 of 24 commodities tracked by the index, while hogs, nickel and Kansas wheat fell the most.

Gold futures rose 0.5 percent to $1,721.10 an ounce, rebounding from the biggest weekly drop in five months, as the dollar weakened and investors boosted holdings of exchange- traded products backed by bullion to a record 2,621.73 metric tons Nov. 30, according to data compiled by Bloomberg. Silver increased 1.4 percent to $33.759 an ounce.

The MSCI Emerging Market index was little changed following a two-day gain. Hong Kong’s Hang Seng (HSI) index slumped 1.5 percent, the steepest drop since Nov. 15. The BSE India Sensex 30 Index slipped 0.2 percent, retreating from the highest level since April 2011.

Turkey’s ISE National 100 (XU100) Index rose 1.7 percent to the highest close in records dating to January 1988 as the nation’s inflation rate fell to the lowest in 14 months, giving the central bank more room to reduce borrowing costs.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net

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

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