Bloomberg News

U.S. Stocks Decline Amid Greece, Fiscal Cliff Concerns

November 08, 2012

U.S. Stocks Decline Amid Greek Aid Concern as Apple Slumps

McDonald’s Corp. slid 0.9 percent to $86.10. Photographer: Brent Lewin/Bloomberg

The Standard & Poor’s 500 Index had the biggest two-day decline in a year as investors speculated Greece’s bailout will be delayed and that President Barack Obama’s re-election endangers tax breaks for investors.

Apple Inc. (AAPL:US), the world’s most valuable company, retreated 3.6 percent, extending its plunge since its September high to 23 percent. McDonald’s Corp. (MCD:US), the world’s largest restaurant chain, dropped 2 percent after its monthly store sales declined for the first time in nine years. Prudential Financial Inc. (PRU:US), the second- largest U.S. life insurer, decreased 4.8 percent after lowering its assumptions for equity and bond returns.

The S&P 500 declined 1.2 percent to 1,377.51 at 4 p.m. New York time, dropping 3.6 percent in two days. The benchmark gauge for American equities retreated below its average price of the last 200 days of 1,380.71. The Dow Jones Industrial Average decreased 121.41 points, or 0.9 percent, to 12,811.32. Volume for exchange-listed stocks in the U.S. was 6.9 billion shares, or 15 percent above the three-month average.

“It’s hard bargaining for Greece,” said Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion. “The risk of a recession is still out there. Apple might be a victim of its own success because it’s risen so much. With its huge market cap, as Apple goes, so goes the broader market.”

Equities extended yesterday’s tumble as investors turned to the budget debate and Europe’s crisis following President Obama’s re-election. Energy, financial and technology shares had the biggest losses in the S&P 500 in two days, falling at least 4.2 percent. The Dow dropped 3.3 percent in the period.

Post-Election

Obama’s presidential victories have preceded the two biggest post-Election Day selloffs on record, according to data compiled by Bloomberg starting in 1896. The Dow’s 9.7 percent plunge in the two days after he won his first term in 2008 came at the height of the credit crisis that erased $11 trillion from American equity values. This year’s two-day drop ranks second.

The Dow lost 32 percent from Election Day in 2008 to its 12-year low of 6,547.05 on March 9, 2009. From there it rallied 96 percent, handing Obama the biggest gain for any first term president since Bill Clinton, data compiled by Bloomberg show.

Stocks have tumbled since the re-election of Obama and a split Congress on concern they’ll be unable to compromise and avoid a series of changes that have become known as the fiscal cliff. The Congressional Budget Office released a report today reaffirming its previous projections that allowing the scheduled tax increases and automatic spending cuts to take effect would lead to a recession in the first half of 2013. Congress returns to Washington next week for a post-election session that will focus on the fiscal cliff.

Under Pressure

Euro-area finance ministers may not make a decision on unlocking funds for Greece until late November as they await a full report on the country’s compliance with the terms of its bailout, a European Union official said.

Greek Prime MinisterAntonis Samaras mustered support in Parliament to approve austerity measures needed to unlock bailout funds, in a tense vote that weakened his majority after the expulsion of seven dissenting lawmakers. The European Central Bank kept interest rates on hold today as the economic outlook worsens and Spain resists asking for a bailout that would open the door to ECB bond purchases.

“We’re not out of the woods yet,” German Finance Minister Wolfgang Schaeuble said in Hamburg today. “At the moment, I don’t see how we can take the decision already next week.”

Latest IPhone

Apple, the most valuable company, slumped 3.6 percent to $537.75. It dropped to the lowest level since May 18 and trimmed this year’s surge to 33 percent. The company hasn’t been able to keep up with demand for the latest version of the iPhone, which accounts for about two-thirds of the company’s profit.

McDonald’s dropped 2 percent to $85.13. Sales at stores open at least 13 months fell 1.8 percent in October as U.S. customer traffic decreased (MCD:US). Analysts projected a drop of 1.1 percent, the average of estimates compiled by Consensus Metrix. after narrowing its full-year profit forecast.

Prudential slumped 4.8 percent, the most since May, to $52.76. The Newark, New Jersey-based company cut its projection of annual stock market returns, including dividends, to 8 percent from 9.25 percent. The projection for bond returns was lowered by about 100 basis points, the company said on a conference call today. The new estimate is for 4.6 percent total returns.

Kohl’s Corp. (KSS:US) slipped 5.1 percent to $51.55. The third- largest U.S. department-store chain fell after narrowing its full-year profit forecast.

Monster Beverage

Monster Beverage Corp. (MNST:US) slid 1.3 percent to $44.40 after posting third-quarter profit that trailed analysts’ estimates as sales growth slowed.

Autodesk Inc. (ADSK:US) lost 2.7 percent to $30.73. The software maker was downgraded to hold from buy at Jefferies Group Inc. by equity analyst Ross Macmillan. The 12-month share-price estimate is $34.

Bank of America Corp. (BAC:US) climbed 1.7 percent to $9.39. The stock could almost double in three years as capital improves, operating costs decline and mortgage risks ease, according to Ed Najarian, banking analyst at ISI Group.

Najarian changed his rating to buy from hold, saying in a note to investors yesterday that Bank of America (BAC:US) may be able to buy back common shares sooner and in greater amounts than he expected. The dividend, now 4 cents a share annually, could jump to an annual 20 cents next year and 40 cents by 2015, ISI wrote.

Qualcomm Inc. (QCOM:US) jumped 4.4 percent to $60.67. The largest seller of mobile-phone semiconductors forecast sales and profit that exceeded analysts’ estimates, helped by robust consumer demand for smartphones.

Market Value

The company briefly gained a bigger market value than Intel Corp. for the first time. Under Chief Executive Officer Paul Jacobs, the company is gaining as consumers in developed nations snap up pricey new phones while those in emerging markets upgrade to devices that provide Web access. Intel, a laggard in the market for mobile-phone chips, is being hurt by slack personal-computer sales.

“Qualcomm has absolutely been one of the prime beneficiaries in smartphones and tablets,” said Mike Burton, an analyst at Brean Capital LLC. “This is a very strong report.”

CBS Corp. (CBS:US) rose 1.1 percent to $34.36. The owner of the most-watched TV network said third-quarter profit increased 16 percent, beating analysts’ estimates on rising income from affiliate fees and sales of reruns.

Smaller Companies

Shares of smaller U.S. companies are performing well enough this quarter to signal a year-end rally in stocks, according to Ari Wald, an analyst at PrinceRidge Group LLC. The Standard & Poor’s MidCap 400 Index has risen relative to the S&P 500 since the quarter started. The S&P SmallCap 600 Index has followed suit more recently.

The increases in the index ratios are noteworthy because they happened “during a period of market consolidation, when investors tend to gravitate toward safer, bigger-cap names,” Wald, based in New York, wrote in a note yesterday.

Companies in the S&P 500 had a median market capitalization of $12.4 billion as of yesterday, according to data compiled by Bloomberg. The medians for the MidCap 400 and SmallCap 600 were $2.7 billion and $730 million, respectively. The S&P 500 posted a 3.2 percent decline for the quarter through yesterday.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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Companies Mentioned

  • AAPL
    (Apple Inc)
    • $112.52 USD
    • -0.13
    • -0.12%
  • MCD
    (McDonald's Corp)
    • $93.17 USD
    • -0.50
    • -0.54%
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