U.S. Stocks Fall on Budget, Economic Growth Concerns

U.S. stocks fell for a fourth day amid concerns over budget talks and economic growth as investors weighed prospects for easing tensions in the Middle East.

Red Hat Inc. slumped 12 percent after billings at the largest seller of the Linux operating system trailed estimates. Homebuilders gained 2.3 percent as a group after a report showed home prices increased by the most in more than seven years and Lennar Corp.’s profit beat analyst estimates. Applied Materials Inc. advanced 9.1 percent after agreeing to buy Tokyo Electron Ltd. for about $9.39 billion in stock.

The Standard & Poor’s 500 Index fell 0.3 percent to 1,697.42 at 4 p.m. in New York. The Dow Jones Industrial Average lost 66.79 points, or 0.4 percent, to 15,334.59. About 6 billion shares changed hands on U.S. exchanges, in line with the three-month average.

The market is “riding waves of news, both good and bad,” Malcolm Polley, the chief investment officer at Stewart Capital Advisors LLC in Indiana, Pennsylvania, said in a telephone interview. His firm manages $1.1 billion. “The market is very dependent on macro news.”

The S&P 500 initially fell as much as 0.4 percent after the Conference Board’s index of U.S. consumer confidence slumped in September to a four-month low. A separate report showed a gauge of manufacturing in the region covered by the Federal Reserve Bank of Richmond shrank in September.

‘Meaningful Agreement’

The equity benchmark index erased earlier losses as President Barack Obama said recent overtures from Iran may offer a basis for a “meaningful agreement” to resolve the confrontation over the Persian Gulf nation’s nuclear program, one of the primary sources of instability in the Middle East. Iranian officials told the U.S. that the time isn’t right for direct contact between the two countries’ leaders.

Stocks turned lower in the last 30 minutes of trading as investors watched the debate in Washington over spending cuts. U.S. Senate Democrats offered a new proposal that funds the government through Nov. 15, complicating efforts to avoid a government shutdown in a week as Republican Senator Ted Cruz began an extended speech in opposition to funding for the health-care law.

“We may have a couple few weeks where there is still lingering concern over the Fed along with very much headline risk around the budget ceiling debate,” David Chalupnik, head of equities at Nuveen Asset Management in Minneapolis, said in a phone interview. His firm manages more than $115 billion. “Over the short term, we would see the market continue to either muddle through or consolidate before we hit earnings season.”

Stimulus Debate

The S&P 500 has declined 1.6 percent over four days after reaching an all-time high of 1,725.52 as the Federal Reserve refrained from cutting stimulus. The Federal Open Market Committee said after its Sept. 17-18 meeting that it wants more evidence of an economic recovery before paring its $85 billion of monthly asset purchases, surprising economists who had forecast a reduction. The S&P 500 has gained 5.7 percent this quarter and is up about 19 percent for the year.

Fed Bank of New York President William C. Dudley said today the central bank may reduce the pace of its quantitative easing program in 2013 depending on the economy’s performance.

“If the economy were behaving in a way aligned with the Fed’s June forecast, then it’s certainly likely that the Fed would begin to taper later this year,” Dudley said in an interview with CNBC. “I certainly wouldn’t want to rule it out. But it depends on the data.”

‘Different Views’

Stocks fell on Sept. 20 as Fed Bank of St. Louis President James Bullard said policy makers may decide to reduce their monthly bond purchases at the meeting in October.

“There are so many different views from the Fed itself and there is no one voice that seems to be articulating a common message,” Mark Freeman, who oversees about $15.8 billion as chief investment officer at Westwood Holdings Group Inc. in Dallas, said by phone. “What they ultimately created is uncertainty and that’s never a positive for the market.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, slipped 1.6 percent to 14.08, extending its drop for the year to 22 percent.

Seven out of 10 S&P 500 groups fell as telephone and consumer-staples companies declined more than 0.7 percent for the worst performance.

Red Hat tumbled 12 percent, the most in the S&P 500, to $46.73. Billings, a predictor of future revenue, rose 8 percent in the second quarter from a year earlier to $376 million. Analysts at CLSA had projected an increase of 17 percent, and Stifel Nicolaus & Co. predicted 14 percent growth.

Settlement Talks

JPMorgan Chase & Co. fell 2.2 percent to $50.32 for the biggest retreat in the Dow. The lender resumed settlement talks with the U.S. as the government was preparing to sue the bank in California federal court alleging it misrepresented the quality of mortgage-backed securities it sold from 2005 to 2007, according to a person familiar with the matter.

The bank offered to pay about $3 billion to settle an array of probes, the Wall Street Journal reported today, citing a person familiar with the matter. The Justice Department pressed the bank to pay more, the report said, citing the person.

Carnival Corp. slipped 7.7 percent to $34.54. The world’s largest cruise-ship operator forecast fourth-quarter results that trailed analysts’ estimates, citing a decline in advance bookings and higher fuel prices.

The S&P Supercomposite Homebuilding Index rose 2.3 percent, with all its 11 members gaining, as an industry report showed home prices in 20 U.S. cities increased in the 12 months through July by the most in more than seven years.

Lennar, the third-largest U.S. homebuilder by revenue, rose 4.3 percent to $36.01 after fiscal third-quarter earnings topped analysts’ estimates, driven by higher sales and home prices.

Applied Materials

Applied Materials advanced 9.1 percent to $17.45 as the largest supplier of chipmaking equipment agreed to buy Tokyo Electron. Gary Dickerson, chief executive officer of Applied Materials, will become CEO of the combined company, which will be 68 percent owned by Applied Materials shareholders.

Facebook Inc. climbed 2.7 percent to $48.45. Citigroup Inc.’s Mark May raised his recommendation on the social-network operator to buy from neutral, saying feedback from advertisers and agencies suggest that the growth seen in the second quarter is sustainable. May also boosted his price estimate by 72 percent to $55 a share.

CarMax Inc. gained 3.6 percent to $51.79. The car dealer’s second-quarter profit beat analyst estimates as used car sales climbed 20 percent from a year ago.

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