Bloomberg News

U.S. Stocks Drop on Concern Congress Won’t Agree on Budget Cuts

November 30, 2011

Nov. 21 (Bloomberg) -- U.S. stocks retreated, sending the Standard & Poor’s 500 Index down a fourth straight day, after lawmakers failed to agree on budget cuts and Moody’s Investors Service warned of France’s fiscal challenges.

Bank of America Corp. and Citigroup Inc. slid at least 1.7 percent following losses in European lenders. Mosaic Co. and Halliburton Co. declined more than 1.4 percent as commodities sank. Walgreen Co. dropped 2.1 percent as Morgan Stanley cut its rating on the largest U.S. drugstore chain.

The S&P 500 dropped 1.3 percent to 1,200.34 as of 9:32 a.m. New York time. The benchmark gauge decreased 3.4 percent over the previous three days. The Dow Jones Industrial Average declined 126.02 points, or 1.1 percent, to 11,670.14 today after a Democratic aide said the supercommittee that was supposed to dissolve congressional gridlock in Washington is instead on the brink of failure.

“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.”

Equities slumped 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 slumped 5.6 percent last week, the biggest drop among 10 industries, after Fitch Ratings said further contagion from Europe’s debt turmoil would be a risk for U.S. banks.

No Deal

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. The 12-member bipartisan supercommittee likely will announce today that it can’t reach agreement on deficit savings, according to a Democratic aide.

“Failure to reach agreement on at least the minimum required savings will reflect poorly on Congress,” David Kostin, a strategist at New York-based Goldman Sachs Group Inc., wrote in a report to clients dated Nov. 18. “It would showcase the inability of elected officials to act in the long-term best interests of all Americans.” Kostin said that may drive the S&P 500 down to 1,100.

Investors also awaited data which will probably show that sales of previously owned homes in the U.S. fell in October for a second month. Concern about Europe’s debt crisis also pushed stocks lower. France’s rising financing costs are increasing the nation’s fiscal challenges, according to report issued by Moody’s Investors Service. Germany’s Finance Ministry said the country’s expansion is “noticeably slower” this quarter.

--Editors: Nick Baker, Michael P. Regan

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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