U.S. Stocks Decline as Lawmakers Fail to Reach Debt Deal

Photographer: Scott Eells/Bloomberg

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Photographer: Scott Eells/Bloomberg

Traders work on the floor of the New York Stock Exchange in New York.

U.S. stocks dropped, following a four-day rally in the Standard & Poor’s 500 Index, as lawmakers failed to reach an agreement to extend the government’s borrowing limit less than two days before the deadline.

Citigroup Inc. dropped 1.5 percent as its profit fell short of analysts’ estimates. Teradata (TDC) Corp. declined 18 percent after the computer-data storage company’s earnings missed projections. Flir Systems Inc. dropped 14 percent after preliminary earnings fell short of analyst estimates. FedEx Corp. jumped 4.1 percent after the world’s largest cargo airline operator announced a share repurchase program.

The S&P 500 fell 0.7 percent to 1,698.06 at 4 p.m. in New York. The Dow Jones Industrial Average declined 133.25 points, or 0.9 percent, to 15,168.01. About 6.2 billion shares changed hands on U.S. exchanges today, 6.3 percent above the three-month average.

“Everyone is somewhat over-caffeinated and a bit jittery in part because of politicians not doing their job,” Chad Morganlander, a Florham Park, New Jersey-based portfolio manager at Stifel Nicolaus & Co., which oversees about $130 billion of assets, said by phone. “The markets are trading on every news clip and the uncertainty is increasing, which is having an unstabilizing effect in the markets.”

The benchmark index dropped as much as 0.8 percent after Senate Majority Leader Harry Reid rejected a House plan to halt the fiscal impasse and Senate leaders stopped talks on a bill that would fund the government through Jan. 15, 2014, and suspend the U.S. debt limit until Feb. 7. The Senate talks haven’t broken down, spokesmen for the chamber’s top leaders said.

Revised Plan

The House later revised its plan, which would extend government funding through Dec. 15, rather than Jan. 15, 2014, in the Senate plan, said Representative Devin Nunes of California, who had been meeting with leaders. A vote could come as soon as tonight.

The new House proposal would bar government subsidies of health insurance for congressional staff members, along with lawmakers and high-ranking administration officials, Nunes said. A two-year delay in the medical-device tax was dropped, he said.

The Congressional impasse has left the government partially shut down since Oct. 1 and could lead to the U.S. reaching on Oct. 17 the limit on federal borrowing.

The S&P 500 closed at the highest since Sept. 19 yesterday after a four-day rally gave it the biggest advance since January, as optimism grew that lawmakers would reach a deal to prevent a government default. The rally pushed the gauge to within 16 points of its Sept. 18 record of 1,725.52.

‘Political Mess’

“If we can get through this political mess, then we can really start to focus on more fundamental things like earnings,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., said in a phone interview. His firm manages more than $90 billion. “The numbers that we are going to start to get for the last month, you might see a little bit of a slowdown from the government shutdown.”

A report today showed manufacturing in the New York region grew at a slower pace than projected in October as sales and hiring cooled. The government shutdown has delayed the publication of some closely watched economic data, including the Labor Department’s monthly jobs gauge.

Earnings Forecast

Profits for companies in the S&P 500 probably increased 1.4 percent during the three months while sales rose 2 percent, according to analysts’ estimates compiled by Bloomberg. Intel Corp., Johnson & Johnson, Yahoo! Inc. and Coca-Cola Co. were are among nine companies in the S&P 500 that released third-quarter results today.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, jumped 16 percent to 18.66. the biggest gain since June 20.

All 10 main industries in the S&P 500 fell at least 0.4 today, as utility stocks dropped 1.4 percent to lead losses. Industrial companies and producers of consumer-discretionary products sank more than 0.5 percent.

Home Depot Inc. retreated 1.5 percent to $75.18 and Procter & Gamble Co. sank 1.5 percent to $77.60 for the biggest slides in the Dow.

An S&P index of homebuilders fell 2.6 percent for a second day of losses. KB Home slid 3.2 percent to $16.09 and Lennar Corp. fell 2.8 percent to $33.34.

Teradata Profit

Teradata sank 18 percent to $42.91. The company said adjusted earnings per share amounted to 69 cents to 70 cents in the third quarter, compared with the average analyst estimate that called for 81 cents. Teradata cut its earnings forecast for the year to $2.70 to $2.80, down from a previous prediction of $3.05 to $3.20.

Flir Systems Inc. lost 14 percent to $28.59. The maker of surveillance and broadcast systems reported preliminary third-quarter profit below analyst estimates as exposure to the U.S. federal government hurt results.

Citigroup dropped 1.5 percent to $48.86. The third-biggest U.S. bank reported a $3.23 billion profit that missed estimates as bond trading slumped 26 percent and U.S. mortgage revenue declined.

Charles Schwab Corp. gained 4.6 percent to $23.03. The brokerage reported third-quarter profit that beat analyst estimates as average revenue per trade increased.

Coca-Cola increased 0.7 percent to $37.66. The world’s largest beverage company said third-quarter profit rose as sales volumes advanced in North America.

FedEx Buyback

FedEx rallied 4.1 percent to $120.08, the highest since February 2007. The package delivery company said it would buy back 32 million shares, or about 10 percent of its outstanding stock as of Sept. 30. The repurchase program comes in addition to an existing plan to buy back 7.4 million shares.

Even with a deadline looming for the U.S. to avoid a debt default, it’s been a comparatively calm October for financial markets. Daily swings in the S&P 500 have averaged 0.78 percent so far this month through yesterday, down from 0.9 percent for Octobers over the last eight decades and less than a quarter the moves in 1929, 1987 and 2008, data compiled by Bloomberg show.

U.S. equities aren’t overpriced even though they have historically elevated valuations, Robert J. Shiller, a co-winner of this year’s Nobel Prize in economics, said today in a Bloomberg Television interview with Tom Keene and Sara Eisen.

Companies are “relatively high-priced” according to Shiller’s cyclically adjusted price-earnings ratio, or CAPE, which compares the S&P 500 with companies’ average profits during the past 10 years, he said.

“The U.S. market is still not that overpriced, not like it was in 2000,” even though “we’re pretty high” using the CAPE gauge, he said. “Looking at the alternatives, it should be a part of your portfolio.”

To contact the reporter on this story: Nick Taborek in New York at ntaborek@bloomberg.net

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

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