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Stocks decline from two-month high amid budget negotiations

Stocks fell, pulling the Standard & Poor’s 500 Index down from a two-month high, as deteriorating federal budget negotiations fueled concern that automatic tax increases and spending cuts will be triggered.

Alcoa Inc. (NYSE: AA) fell 3 percent as Moody’s Investors Service placed the aluminum producer’s credit rating under review for a downgrade. Consumer-staples, health-care and phone stocks lost more than 1 percent for the worst performance among 10 S&P 500 groups. General Motors Co. (NYSE: GM) jumped 6.6 percent on plans to purchase 200 million shares from the government. Knight Capital Group Inc. (NYSE: KCG) rose 5.4 percent on plans to be bought by Getco LLC.

The S&P 500 lost 0.8 percent to 1,435.81 Wednesday. The Dow Jones Industrial Average slipped 98.99 points, or 0.7 percent, to 13,251.97. The Chicago Board Options Exchange Volatility Index, known as the VIX, jumped 12 percent to 17.36 for the biggest gain since Oct. 23.

“The underlying situation for U.S. equities isn’t bad, but a lot hinges on the fiscal cliff negotiations,” George Feiger, chief executive officer of Contango Capital Advisors Inc., the San Francisco-based wealth management arm of Zions Bancorporation (Nasdaq: ZION), said in a phone interview. He manages about $3.6 billion at Contango and Western National Trust Co. “If we get through the fiscal cliff with a reasonable result, then the odds are quite substantial that things are going to be better than many people expect by the middle of 2013,” he said. “All of this can be postponed for a year if they screw up on the negotiations and we slide into a recession.”

The S&P 500 has rallied 14 percent this year and is up 1.4 percent in December after the Federal Reserve extended its unprecedented monetary-stimulus efforts. Stocks retreated Wednesday as White House Communications Director Dan Pfeiffer said President Barack Obama would veto a tax and spending proposal presented by House Speaker John Boehner because it would put “too big a burden on the middle class.”

The House may vote Thursday on Boehner’s “Plan B,” which would raise tax rates on income over $1 million, rather than the $400,000 threshold the president proposed in his latest offer. Boehner said Obama will be responsible for “the largest tax increase in American history” if Democrats don’t accept a measure the House plans to pass Thursday.

AT&T Inc. (NYSE: T), the largest U.S. telephone company, decreased 1.3 percent to $33.91. Phone stocks lost 1.2 percent as all of the 10 main industry groups in the benchmark gauge for U.S. equities fell. Consumer staples stocks slumped 1 percent, while health-care companies retreated 1.1 percent.

Housing starts in the U.S. fell 3 percent to a 861,000 annual rate from a revised 888,000 annual pace in October, the Commerce Department reported Wednesday in Washington. The median estimate of 85 economists surveyed by Bloomberg called for a drop to 872,000.

American Express Co. (NYSE: AXP), the biggest U.S. credit-card issuer by purchases, fell 1.8 percent to $56.79. White House officials have approached Chief Executive Officer Kenneth Chenault about joining President Obama’s second-term administration, possibly as Treasury secretary, according to two people familiar with the matter.

The S&P reached its highest level in two months Tuesday amid signs of progress in efforts by Obama and Republicans to reach agreement on a new budget in Washington.

Smith & Wesson Holding Corp. (Nasdaq: SWHC) and Sturm Ruger & Co. (NYSE: RGR) rebounded after sliding for three days following a school shooting in Newtown, Conn. Smith & Wesson rose 7.2 percent Wednesday after plunging 18 percent in the previous three sessions, its biggest drop in three years. The stock had more than doubled this year before the shooting.

Obama said his administration will come up with “concrete proposals” by next month to help stem gun violence in the U.S. and endorsed restrictions on military-style assault weapons and high-capacity ammunition clips. Obama said there is a growing consensus in the country for restricting high-powered weapons and urged Congress to hold votes on such measures early next year.

Oracle Corp. (Nasdaq: ORCL) gained 3.7 percent to $34.09. The database-software supplier reported fiscal second-quarter sales and profit that topped analysts’ estimates on growing demand for Internet-based software.

Profit excluding some items was 64 cents a share on adjusted revenue of $9.11 billion, the Redwood City, Calif.- based company said Tuesday. That compares with analysts’ average projection for profit of 61 cents on sales of $9.02 billion, according to data compiled by Bloomberg.

Knight Capital added 5.4 percent to $3.51. The company, pushed to the brink of bankruptcy in August by a trading error, chose Getco’s proposal Tuesday over a competing offer from Virtu Financial LLC, three people with direct knowledge of the matter said Tuesday. The high-frequency trader offered $3.75 a share for Knight, one-third of it in stock, for a total price of $1.4 billion, according to a statement from Knight Wednesday.

Markel Corp. (NYSE: MKL) fell 10 percent to $436.24. The company agreed to buy Alterra Capital Holdings Ltd. (Nasdaq: ALTE) for about $3.13 billion in cash and stock to expand in reinsurance. Alterra surged 22 percent to $28.18.

First Solar Inc. (Nasdaq: FSLR), the world’s biggest thin-film solar manufacturer, added 3.2 percent to $33.03.

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