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U.S. Stocks Retreat on Federal Budget Deadline Concern

U.S. stocks fell, after the biggest tumble in five weeks for the Standard & Poor’s 500 Index, amid concern that President Barack Obama and Congress will fail to agree on a budget by the end of the year.

Seven out of 10 groups in the S&P 500 slumped. Hewlett- Packard Co. led losses among the biggest U.S. companies. Chevron Corp. slid 1 percent as energy companies fell. Research In Motion Ltd. (RIM) erased 2.8 percent, after the largest drop since 2008 on Dec. 21. J.C. Penney & Co. and Home Depot Inc. paced gains with consumer discretionary stocks as shoppers made last- minute dashes to buy gifts.

The S&P 500 retreated 0.2 percent to 1,426.66 in New York. The Dow Jones Industrial Average lost 51.76 points, or 0.4 percent, to 13,139.08. New York Stock Exchange trading closed at 1 p.m. ahead of the Christmas holiday. Trading in S&P 500 companies was 38 percent below the 30-day average for that time of day.

“The action last week in Washington flipped the switch for short-term market movement from up to down,” Frederic Dickson, who helps manage $32 billion as chief investment strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, said in a telephone interview. “The action picks up later in the week, when politicians return to Washington but it’s going to take them a couple days to figure out what to do. Today’s a wait-and-see day.”

The S&P 500 is heading for a 0.7 percent gain this month as Obama and Republican leaders discussed how to avoid more than $600 billion in tax increases and spending cuts -- known as the fiscal cliff -- that will automatically take effect at the start of 2013. The Congressional Budget Office has said the changes will probably push the U.S. economy into a recession. The equity benchmark has increased 13 percent this year, heading toward its biggest annual gain since 2009.

Budget Stalemate

Senator Joseph Lieberman, a retiring Connecticut independent, said yesterday that Senate leaders must take charge of resolving the budget stalemate.

The S&P 500 slid 0.9 percent on Dec. 21 after House Speaker John Boehner failed to obtain support from congressional Republicans for his plan to allow tax rates to increase on incomes above $1 million. Speaking on CNN’s “State of the Union” program, Lieberman said, “For the first time, I feel it’s more likely that we will go off the cliff.”

Lawmakers plan to return to Washington on Dec. 27 to resume their negotiations. Before leaving to spend the Christmas holiday with his family in Hawaii, Obama on Dec. 21 urged leaders of both parties to put together an interim bill to keep taxes from rising on middle-income Americans.

Holiday Pause

“The continued uncertainty over the fiscal cliff issue is weighing on the market,” Dan Heckman, senior fixed-income strategist at Minneapolis-based U.S. Bank Wealth Management, which oversees $111 billion, said in a telephone interview. “There’s concern corporate earnings will be a little bit weaker in the fourth quarter than the market had anticipated. As much as we’d like to have a holiday season rally here, I think the market is going to pause.”

Americans have missed out on almost $200 billion of stock gains as they withdrew money from the market over the past four years because of the financial crisis.

Assets in equity mutual, exchange-traded and closed-end funds have increased about 85 percent to $5.6 trillion since the bull market began in March 2009, trailing the S&P 500’s 94 percent advance, according to data compiled by Bloomberg and Morningstar Inc. (MORN) The proportion of retirement funds in stocks fell about 0.5 percentage points, compared with an average increase of 8.2 percentage points in rallies since 1990.

Biggest Declines

Energy and technology companies posted the biggest drops out of 10 S&P 500 groups today, falling more than 0.4 percent. Hewlett-Packard slumped 2.3 percent, the most in the Dow, to $14.01. Chevron lost 1 percent to $108.63.

RIM, which is set to release its BlackBerry 10 line of smartphones early next year, sank 2.8 percent to $10.61. The company tumbled 23 percent on Dec. 21 after Chief Executive Officer Thorsten Heins said users who do not want enhanced services, including advanced security, are expected to generate “less or no service revenue.” Service fees accounted for about $982 million in sales last quarter, out of a total of $2.73 billion.

Herbalife Ltd. dropped 4.4 percent to $26.06, following a 19 percent drop on Dec. 21. The maker of weight-loss supplements whose shares have been shorted by hedge-fund manager Bill Ackman hired Moelis & Co. as a strategic adviser.

Failed Bid

Greenbrier Cos. fell 3.1 percent to $15.64 after tumbling 22 percent in the previous two trading days as Carl Icahn’s failed bid for the company and the sale of most of his shares dragged the stock lower for a third day. Icahn disclosed on Dec. 21 that he cut his Greenbrier stake to 3.41 percent after the Lake Oswego, Oregon-based company rejected a sweetened offer of $22 a share from Icahn-controlled American Railcar Industries Inc.

Consumer discretionary stocks posted among the biggest gains out of 10 groups in the S&P 500 today, rising 0.2 percent. Comscore said yesterday that e-commerce sales jumped 16 percent to $38.7 billion between Nov. 1 and Dec. 21. The Reston, Virginia-based digital research firm reported a 15 percent gain last year. It excludes auctions and large corporate purchases.

J.C. Penney rose 1.4 percent to $19.87. Home Depot increased the second-most in the Dow, adding 0.4 percent to $61.57.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

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

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