U.S. stocks erased gains in the final minutes of trading as investors prepared for rebalancing of benchmark indexes and after a Senate vote kept $85 billion of automatic spending cuts in place.
J.C. Penney Co. (JCP) plunged 17 percent after posting its lowest annual sales in more than two decades. Sears Holdings Corp. (SHLD), the retailer controlled by hedge-fund manager Edward Lampert, slumped 5.2 percent after posting a fourth-quarter loss that was larger than it forecast. Intuitive Surgical Inc. (ISRG) dropped 11 percent as the provider of robots used in surgery is being probed by U.S. regulators over the safety of its products.
The Standard & Poor’s 500 Index fell 0.1 percent to 1,514.68 at 4 p.m. in New York, after rising as much as 0.6 percent earlier. The Dow Jones Industrial Average lost 20.88 points, or 0.2 percent, to 14,054.49. The measure is less than 1 percent away from its October 2007 (INDU) record. About 7 billion shares changed hands on U.S. exchanges, or 11 percent above the three-month average, according to data compiled by Bloomberg.
“While we don’t expect massive impact from the impending spending cuts, there always remains a certain fear of the unknown and an anticipation of increased volatility into that uncertainty,” E. William Stone, chief investment strategist at PNC Wealth Management in Philadelphia, said in a telephone interview. His firm manages about $115 billion.
The Dow had earlier climbed to within 16 points of its 2007 record. MSCI Inc. made changes to global and U.S. equity indexes at the close of trading, a process known as rebalancing that can lead to swings in affected stocks. Gains also fizzled as the Senate rejected a pair of partisan proposals to replace $85 billion in automatic spending cuts set to begin tomorrow.
“Sequestration in the U.S. is one of the key issues of the moment,” William Murray, a spokesman at the International Monetary Fund told reporters in Washington today. “What it means is we’ll have to reevaluate our growth forecasts in the U.S. and also our other forecasts.”
The economy in the U.S. managed to barely expand in the fourth quarter, erasing a previously estimated contraction, as the smallest trade deficit in almost three years helped overcome the biggest plunge in defense spending since the Vietnam War era. Fewer Americans than forecast filed applications for unemployment benefits last week, showing companies were looking beyond looming government spending cuts and maintaining staffing.
The S&P 500 (SPX), which is trading at about 3 percent below its record, has gained 6.2 percent this year as lawmakers agreed on a compromise on taxes and amid better-than-estimated earnings. The index rose 1.1 percent in February, capping a four-month rally, the longest stretch since September.
J.C. Penney tumbled 17 percent to $17.57 after the department-store chain lost $4.3 billion in sales in the first year of Chief Executive Officer Ron Johnson’s turnaround plan. The company yesterday said its net loss in the quarter ended Feb. 2 widened to $552 million from $87 million a year earlier. The Plano, Texas-based retailer’s annual revenue slid 25 percent to $13 billion, the lowest since at least 1987.
Sears lost 5.2 percent to $45. The loss narrowed to $489 million, or $4.61 a share, from a loss of $2.4 billion, or $22.63, a year earlier, the Hoffman Estates, Illinois-based company said today in a statement. Sears had predicted a loss of $280 million to $360 million. Revenue fell 1.8 percent to $12.3 billion, exceeding the two analysts’ estimates compiled by Bloomberg as domestic like-for-like sales improved.
Intuitive Surgical plunged 11 percent to $509.89. The regulators have asked surgeons at key hospitals to list any complications they may have seen with Intuitive’s robots, which cost $1.5 million each and were used last year in almost 500,000 procedures. The doctors were also surveyed on which surgeries the robots might be most and least suited for, and asked to discuss their training, according to copies of the survey obtained by Bloomberg News.
Groupon Inc. slumped 24 percent to $4.53 after forecasting sales that missed analysts’ estimates. After the close of trading, the company said it removed Andrew Mason as chief executive officer. Pressure had been mounting on the company to seek a new CEO as Mason struggled to cope with a drop in demand for daily coupons, which make up most of its revenue. The shares jumped 3.5 percent as of 5:14 p.m. in New York.
Cablevision Systems Corp. (CVC) slipped 9.6 percent to $13.99. The fifth-largest U.S. cable provider by subscribers posted a fourth-quarter operating loss and missed revenue estimates after Superstorm Sandy devastated New York-area homes.
NII Holdings Inc. retreated 11 percent to $4.82. The seller of Nextel mobile-phone service in Latin America fell after a fourth-quarter loss that included a writedown of its assets in Chile.
Limited Brands Inc. rose 2.3 percent to $45.52. The owner of Victoria’s Secret lingerie chain said fourth-quarter net income rose 14 percent as sales grew. The company known for its supermodels called “Angels” is planning its first stores in Hong Kong, where surging demand from shoppers has sent retail rents to a record.
Mylan Inc. jumped 3.6 percent to $29.61. The second-biggest stand-alone generic drug-maker agreed to buy the injectable medicine unit of India’s Strides Arcolab Ltd. for $1.6 billion as it targets becoming among the top three global providers.
Amerisafe Inc. added 12 percent to $32.62. The workers’ compensation insurer for industries including construction and logging gained after fourth-quarter profit beat estimates.
Warren Buffett once said that shunning dividends in his early years running Berkshire Hathaway Inc. (BRK/A) allowed him to refocus the company on better businesses, much as a person would overcome “a misspent youth.”
The 82-year-old billionaire is now focused on his legacy as he prepares the company he’s overseen for almost five decades for new management. Using his annual letter tomorrow to outline a dividend strategy could help explain to shareholders how the company’s next leaders should approach the challenge of allocating profits.
“It may ease the burden on the successors” if they are able to initiate a dividend, said Richard Cook, co-manager of the Cook & Bynum Fund, which counts Berkshire among its largest holdings. Berkshire and its units “generate a lot of cash.”
Buffett has sought to teach shareholders about business, investing and corporate governance through the annual letters and meetings held in Omaha, Nebraska, where Berkshire is based. As the company grew with investment gains and acquisitions, so did its cash pile, which reached $47.8 billion at the end of September. That’s made the task of allocating the funds more difficult, because it’s hard to find worthwhile, large investments, Buffett has said.
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