U.S. Stocks Fall as Deadline Approaches on Budget Deal

U.S. Stock-Index Futures Drop on Concern Over Budget Agreement
Traders work on the floor of the New York Stock Exchange in New York. Photographer: Scott Eells/Bloomberg

U.S. stocks fell for a fifth day, the longest drop for the Dow Jones Industrial Average since July, amid concern talks between President Barack Obama and Republicans may not produce a budget by the year-end deadline.

All 10 groups in the S&P 500 declined. Exxon Mobil Corp. and Peabody Energy Corp. slumped at least 2 percent as energy shares tumbled 1.8 percent. Hewlett-Packard Co. erased 2.6 percent after the computer maker said the U.S. Justice Department opened an investigation relating to Autonomy Corp., the software maker it bought last year.

The S&P 500 fell 1.1 percent to close at 1,402.43, its biggest decline since Nov. 14. The Dow dropped 158.2 points, or

1.2 percent, to 12,938.11 today. More than 4.4 billion shares traded hands today, or 27 percent below the three-month average, according to data compiled by Bloomberg.

“The markets are willing to turn on a dime, on whatever the news, whether it’s positive or negative,” Greg Peterson, director of investment research at Ballentine Partners LLC in Waltham, Massachusetts, which manages about $4.2 billion in assets, said by telephone. “What the markets fear most is that we’re in this paralysis where the government is unable to govern, communicate and compromise.”

The S&P 500 slipped 1.9 percent this week as Obama and lawmakers struggled to reach agreement on avoiding more than $600 billion in tax increases and spending cuts, known as the fiscal cliff. The benchmark index’s five-day losing streak is the longest since September. The gauge is still up 12 percent for the year.

Obama Meeting

Stocks extended losses in the final hour of trading as Obama was said to reiterate his budget proposal from last week, spurring concern lawmakers were no closer to reaching a compromise. The House plans a session on Dec. 30 in an effort to avoid the fiscal cliff.

Obama is seeking an up-or-down vote on his proposal to extend tax cuts for annual income up to $250,000, absent a counteroffer from congressional leaders, an official familiar with today’s budget talks said. Obama is proposing an extension of expanded unemployment benefits and other programs, the official said.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 option prices, jumped 17 percent to 22.72, the highest level since June 13. The index has surged 43 percent this month, poised for its biggest increase since July 2011.

Home Sales

Stocks maintained losses today after data showed pending home sales rose for the third month in November. The index of pending home sales climbed 1.7 percent to 106.4, the highest reading since April 2010, after a revised 5 percent gain in October, the National Association of Realtors reported today in Washington. The median forecast in a Bloomberg survey called for a 1 percent advance.

A separate report showed business activity in the U.S. expanded in December for a second month, easing concern that a lack of progress on the federal budget would prompt a slump in manufacturing. The MNI Chicago Report’s business barometer rose to a four-month high of 51.6 from November’ 50.4. A reading of 50 is the dividing line between expansion and contraction. The median estimate in a Bloomberg survey called for a rise to 51.

“The economic outlook is improving but it’s awfully hard to see that with the fixation on the fiscal cliff here,” David Joy, the Boston-based chief market strategist at Ameriprise Financial Inc., which oversees about $680 billion, said by phone. “You get some optimism and prices go up. You get some pessimism and then they go down. I’m not sure this market can reflect the underlying fundamentals.”

Exxon, Peabody

Energy and materials companies were the worst performers out of 10 S&P 500 groups, losing at least 1.3 percent. Exxon Mobil erased 2 percent to $85.10. Peabody Energy Corp. slumped

2.4 percent to $25.36.

Hewlett-Packard fell 2.6 percent to $13.68, leading losses in the Dow. The Justice Department opened an investigation relating to Autonomy after the personal-computer maker accused the software company of misrepresenting its performance before being bought by Hewlett-Packard last year. Justice Department representatives informed the company on Nov. 21 of the probe, Hewlett-Packard said yesterday in its annual 10-K regulatory filing.

Apple Inc., the world’s most valuable company, retreated

1.1 percent to $509.59. Advanced Micro Devices Inc., the second-largest maker of personal-computer processors, slumped 4.6 percent to $2.28. Technology stocks in the S&P 500 fell 1.2 percent as a group.

Ford Motor Co. climbed 0.9 percent to $12.87 for the biggest gain in the S&P 500, as only 18 of the index’s stocks advanced.

Seattle-based apparel retailer Nordstrom Inc. increased 0.7 percent to $52.16 and Macy’s Inc., the second-largest U.S. department-store chain, gained 0.8 percent to $37.36 for the next-biggest advances in the S&P 500.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE