Stock Market Watch

Stalled Budget Talks Hurt U.S. Stocks

by ·




Concerns today grew that $1.2 trillion in automatic federal budget cuts will be triggered if lawmakers fail to reach a deal, leading to a slump in U.S. stocks.

All 10 industries in the benchmark measure declined as 483 out of 500 companies retreated. Morgan Stanley (NYSE:MS) tumbled 6.4 percent, while Hewlett-Packard Co. (NYSE:HPQ), Caterpillar Inc (NYSE:CAT). and Chevron Corp. (NYSE:CVX) dropped at least 3 percent. The Dow Jones Transportation Average decreased 3 percent. Gilead Sciences Inc. (NASDAQ:GILD) plunged 10 percent after agreeing to buy Pharmasset Inc. (NASDAQ:VRUS) for about $11 billion in cash. Pharmasset soared 85 percent.

The losses today gave the Standard & Poor’s 500 Index its longest decline since September, with the S&P 500 dropping 2.2 percent to 1,188.79 at 2:10 p.m. New York time. In four days, the benchmark gauge has lost 5.5 percent. The Dow Jones Industrial Average fell 298.2 points, or 2.5 percent, to 11,497.96 today after a Democratic aide said the supercommittee that was supposed to dissolve congressional gridlock in Washington is instead on the brink of failure.Today is the deadline for the Congressional Budget Office to receive information for scoring a proposal in advance of the supercommittee’s Nov. 23 target date for reaching a deal.


“You’re looking at a potential double whammy,” Barry Knapp, the New York-based head of U.S. equity strategy at Barclays Plc, said in a telephone interview. “The bigger problem is that a deal in the supercommittee was expected to pave the way to extend the stimulus that is in the system. If you don’t get a deal, which is probable, you get a big hit to the economy in the first quarter right at the point when the economic fallout from the European debt crisis is hitting.”

The decline pushed the S&P 500 below levels representing the top of a price range that prevailed in the two months after the U.S. was stripped of its AAA credit rating by S&P on Aug. 5. Rallies after the downgrade brought the S&P 500 to closing highs of 1,204.49 on Aug. 15, 1,218.89 on Aug. 31 and 1,216.01 on Sept. 16, according to data compiled by Bloomberg.
Goldman Sachs Group Inc.’s David Kostin said the S&P 500 may fall to 1,100 if the supercommittee fails to reach a deal. The strategist said in a note dated Nov. 18 that lawmakers’ failure to agree on at least the minimum required savings would demonstrate “the inability of elected officials to act in the long-term best interests of all Americans” and may send the S&P 500 down 9.5 percent from last week’s closing level.

European equities were also down today, with the Stoxx Europe 600 Index falling 3.2 percent, the most since Nov. 1. According to report issued by Moody’s Investors Service, France’s rising financing costs are increasing the nation’s fiscal challenges. Germany’s Finance Ministry said the country’s expansion is “noticeably slower” this quarter. Stocks declined last week as higher government bond yields in Spain, France and Italy spurred concern the European debt crisis is intensifying outside Greece. Financial stocks in the S&P 500 were hardest hit last week, losing 5.6 percent, the biggest drop among 10 industries following Fitch Ratings statement that further contagion from Europe’s debt turmoil would be a risk for U.S. banks.

Industrial, financial, energy and technology shares had the biggest losses in the S&P 500 among 10 groups today, falling at least 2.3 percent. Morgan Stanley sank 6.4 percent to $13.30. Hewlett-Packard fell 4.3 percent to $26.80. Caterpillar declined 3.9 percent to $90.30. Chevron dropped 3 percent to $94.93.

Gilead Sciences fell 10 percent to $35.70, while Pharmasset rose 85 percent to $134.22. Gilead, the world’s largest maker of HIV medicines, agreed to buy Pharmasset, betting that its experimental hepatitis C treatments will lead the next generation of therapies in a market potentially reaching $20 billion by 2020.

MF Global Holdings Ltd. plunged 17 percent to 11 cents.

A gauge of homebuilders in S&P indexes sank 1.5 percent even after a report showed that sales of previously owned homes in the U.S. unexpectedly rose in October.

Research In Motion Ltd. (NASDAQ:RIMM) fell 3.6 percent to $17.54 after analysts cut their profit estimates, citing increased competition, and the smartphone maker said some customers couldn’t turn on their BlackBerry Bold devices.

More Posts by this author

.
Post Written By: Meggan


Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing.

You may also like...