U.S. Stocks Fall Amid Budget Debate, Middle East Conflict

U.S. Stock-Index Futures Advance as Cisco Profit Beats Estimates
Cisco surged 7.5 percent to $18.11. Photographer: David Paul Morris/Bloomberg

U.S. stocks fell, sending the Dow Jones Industrial Average to the lowest level since June, as concern about the budget debate in Washington and an Israeli air strike erased an early rally led by technology shares.

Federal Express Corp. and Boeing Co. slumped at least 2.8 percent to pace declines among the largest companies. Bank of America Corp. and JPMorgan Chase & Co. dropped more than 1.8 percent as financial shares sank. Cisco Systems Inc., the world’s biggest maker of computer-networking equipment, jumped 4.8 percent after earnings topped estimates. Facebook Inc. soared 13 percent as investors were undeterred by a surge in the number of tradeable shares after a lockup period expired.

The Standard & Poor’s 500 Index fell 1.4 percent to 1,355.49 at 4 p.m. in New York. The Dow lost 185.23 points, or 1.5 percent, to 12,570.95, the lowest level since June 26. The Nasdaq Composite Index slid 1.3 percent to 2,846.81, dropping more than 10 percent from its almost 12-year closing high in September, in what is known as a correction.

“The recent wall of worry continues to mount,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in an interview. His firm oversees $250 billion. “Middle East geo-political tensions, continued sovereign concerns about Greece and Spain, indecision ahead of the fast-approaching fiscal cliff and the fact that the major U.S. indices continue to trade under key technical levels are all weighing on sentiment.”

Election Retreat

The S&P 500 has fallen 5.1 percent since President Barack Obama’s re-election set up a budget showdown with the Republican-controlled House of Representatives. The benchmark gauge is trading below its average price for the past 200 days, and is down 7.5 percent from an almost five-year high on Sept. 14. Volume for exchange-listed stocks in the U.S. was 7.51 billion shares today, 24 percent above the three-month daily average.

Obama is negotiating to reach a deficit-reduction deal with Congress to avert $607 billion in automatic tax increases and spending cuts, or the so-called fiscal cliff. He said in a White House news conference that voters sent a “very clear message” on Nov. 6 that they want both parties to stop bickering over politics and take the necessary steps to cut the budget deficit through a combination of tax increases for the wealthy and cuts in spending.

The president’s remarks spurred concern lawmakers were not making progress in reaching an agreement to avert the fiscal cliff. Obama will sit down with Democratic and Republican congressional leaders Nov. 16 for an opening round of negotiations.

Air Strike

Stocks extended losses after Israel carried out a series of air strikes in the Gaza Strip today, killing the leader of Hamas’s militant wing, and said it was ready to use ground troops if needed to end attacks on its citizens. In Europe, industrial production dropped the most in more than three years in September, led by double-digit declines in Portugal and Ireland.

Retail sales in the U.S. fell in October for the first time in four months, influenced by the effects of superstorm Sandy, which hurt receipts for some and helped for others. Wholesale prices unexpectedly declined for the first time in five months as energy and vehicle costs dropped.

A number of Federal Reserve officials said the central bank may need to expand its monthly purchases of bonds next year after the expiration of Operation Twist, according to minutes of their last meeting released today.

Operation Twist

Under Operation Twist, scheduled to end in December, the Fed is swapping short-term Treasuries on its balance sheet for longer-term debt. The Fed in addition is buying $40 billion in mortgage-backed securities in a third round of so-called quantitative easing.

All 10 groups in the S&P 500 slid today, with raw-material, financial and industrial shares dropping at least 1.7 percent. FedEx tumbled 3.7 percent to $87.12. Boeing erased 2.8 percent to $71.29. Bank of America slumped 3.6 percent to $8.99, for the biggest drop in the Dow, while JPMorgan declined 1.9 percent to $39.29.

Home Depot Inc. fell 3 percent to $61.47. The largest U.S. home-improvement retailer retreated after reaching the highest level since 2000 yesterday as profits beat estimates. The stock was downgraded to the equivalent of hold by analysts at Gabelli & Co. and Raymond James & Associates Inc.

Advanced Micro Devices Inc. fell 7.7 percent to $1.93, after a 5 percent rally yesterday. The second-largest maker of personal-computer processors said it isn’t actively pursuing a sale of the company or a significant sale of assets. The statement came after Reuters reported yesterday that AMD hired JPMorgan to explore options, including a potential sale of the company or its patent portfolio.

Potash Demand

Mosaic Co. fell 3.3 percent to $49.10. The largest U.S. fertilizer producer may further reduce its output of potash amid lower-than-expected global demand for the crop nutrient, Chief Financial Officer Larry Stranghoener said today. The company yesterday cut its fiscal second-quarter forecast for potash and phosphate shipments as international buyers delay purchases.

Monster Worldwide Inc. retreated 5 percent to $5.93. The online jobs site seeking a buyer may fail to cement a deal after suitors such as TPG Capital and Apollo Global Management LLC passed, said two people familiar with the matter.

Cisco surged 4.8 percent to $17.66. The maker of computer-networking equipment reported profit that topped analysts’ estimates as price reductions helped spur sales and cost cuts kept margins intact.

Juniper, F5

Juniper Networks Inc. the second-largest maker of networking gear, added 1.2 percent to $17.55. F5 Networks Inc., a maker of equipment for managing data traffic, gained 1.1 percent to $87.50.

Abercrombie & Fitch Co. jumped 34 percent to $41.92. The teen retailer with more than 1,000 stores raised its forecast for the year after exceeding its estimates in the third quarter. Sales in the period ended Oct. 27 rose 9 percent, while international sales jumped 37 percent.

Facebook soared 13 percent to $22.36. Restrictions lift today on 804 million shares held by former employees and those who sold at the IPO, almost doubling the total available for trading, according to a regulatory filing.

The operator of the world’s most popular social-networking service has lost about half its value since going public as the number of shares rose and investors fretted about the company’s ability to boost mobile-advertising sales. With its most recent quarterly earnings report, Facebook convinced investors that it has potential to boost ad revenue, helping to drive up the price of shares released for trading today, said Brian Wieser, an analyst at Pivotal Research Group.

Zynga Inc. rose 1.4 percent to $2.14. The largest maker of games played on social networks said Chief Financial Officer David Wehner is departing to take a senior finance job at Facebook. He’ll be succeeded by Mark Vranesh.


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