Bloomberg News

U.S. Stocks Fall as Obama Holds Ground on Income Taxes

December 04, 2012

U.S. stocks fell, sending the benchmark Standard & Poor’s 500 Index lower for a second straight day, after President Barack Obama held his ground about raising tax rates for the highest-income Americans.

Las Vegas Sands Corp. and Wynn Resorts Ltd. (WYNN:US) dropped at least 2.7 percent, joining a slump in Macau casinos (WYNN:US), on speculation China may increase scrutiny of junket operators, who provide credit to high-stake gamblers. Intel Corp. (INTC:US) advanced 2.2 percent on plans to sell bonds in a four-part offering to repurchase stock that’s trading at the lowest in 16 months.

The S&P 500 retreated 0.2 percent to 1,407.05 at 4 p.m. New York time. The Dow Jones Industrial Average fell 13.82 points, or 0.1 percent, to 12,951.78. More than 5.9 billion shares traded hands on U.S. exchanges, or 4.7 percent below the three- month average, according to data compiled by Bloomberg.

“The clock is ticking,” said Quincy Krosby, market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than 1 trillion. She spoke in a phone interview. “The focus is on what goes on in Washington. The market will be volatile. You’ve got to be very well hedged given that the market is so much headline-driven.”

U.S. President Obama’s administration rejected a Republican plan for tackling the fiscal cliff that omitted higher tax rates for top-earning Americans, leaving the issue unresolved with about four weeks left before more than $600 billion in tax increases and federal spending cuts start taking effect. European (SXXP) stocks rose as finance ministers met to discuss moves to stem the debt crisis.

President Obama

Obama said in a Bloomberg Television interview that the Republican offer on resolving the fiscal cliff doesn’t go far enough and won’t raise the revenue needed to shrink the deficit by $4 trillion over the next decade. Obama, in his first television interview since winning re-election, said, “We have the potential of getting a deal done.”

The president said he’s willing to make further cuts in entitlements and realizes he won’t get “100 percent” of what he wants. Still, he insisted that Republicans accept higher tax rates for top earners if the U.S. is to avoid automatic spending cuts and tax increases at the start of 2013.

“We’re going to have to have higher rates for the wealthiest,” Obama said today. “It’s just a matter of math.”

Casino shares tumbled. Police in mainland China and Macau have detained people from at least three of the biggest junket operators in recent weeks, the Wall Street Journal reported, citing people familiar with the situation. By acting as middlemen, junket operators help drive the VIP business that accounts for about two-thirds of casino revenue in the world’s largest gambling hub. Las Vegas Sands (LVS:US) fell 2.8 percent to $45.46. Wynn Resorts dropped 2.9 percent to $110.12.

MetroPCS Falls

MetroPCS Communications Inc. sank 7.5 percent to $9.96. The company, which agreed to merge with T-Mobile USA Inc. in October, fell after Reuters reported that Sprint Nextel Corp. is unlikely to make a counteroffer.

Darden Restaurants Inc. fell 9.6 percent to $47.40. The owner of the Red Lobster and Olive Garden chains reported preliminary fiscal second-quarter profit of 25 cents to 26 cents a share, trailing analysts’ estimates. Chief Executive Officer Clarence Otis said the company’s promotions didn’t resonate with consumers and were affected by rivals’ offers.

Oshkosh Corp. lost 3.8 percent to $28.96. Billionaire activist investor Carl Icahn dropped his bid to buy Oshkosh after failing to receive enough shareholder support.

IAC/InterActiveCorp. declined 7.8 percent to $43.50. The Internet company founded by Barry Diller fell after Goldman Sachs Group Inc. cut its rating on the stock to sell.

Intel Gains

Intel gained 2.2 percent to $19.97. The world’s largest semiconductor maker, whose attempt with Microsoft Corp. to combat Apple Inc.’s iPad in the $63.2 billion tablet market is getting off to a slow start, may issue five-year securities to yield about 80 basis points more than similar-maturity Treasuries, 10-year bonds at a relative yield of about 115 basis points, 20-year securities at about 135 basis points and 30-year debt at about 150, according to a person familiar with the offering.

Big Lots Inc. rose 12 percent to $31.27. The discount retailer boosted its earnings forecast, saying it now expects to earn as much as $3.05 a share this year. The company had projected profit of $2.95 at most.

Netflix Inc. rallied 14 percent to $86.65. The online video service signed a multiyear accord to carry Walt Disney Co. animated and live-action films, marking the first time a major studio has bypassed traditional cable-TV outlets.

Options traders are speculating the worst is over for Hewlett-Packard Co. (HPQ:US), pushing bearish contracts to the cheapest level in almost seven years.

Price Relationship

Puts priced 10 percent below shares in the world’s largest computer maker cost 2.17 points more than calls betting on a 10 percent increase, according to three-month data compiled by Bloomberg. The price relationship known as skew fell to 1.54 on Nov. 26, the lowest since February 2006. Hewlett-Packard shares have lost 50 percent this year.

The stock is cheapest (HPQ:US) in at least four years after the company accused Autonomy Corp., the software maker it bought last year, of a broad range of financial falsehoods contributed to a $8.8 billion writedown. Hewlett-Packard Chief Executive Officer Meg Whitman is cleaning up the business and her strategy of paring product lines and cutting staff to make the company more competitive will benefit stock, according to Keith Trauner of GoodHaven Capital Management LLC.

“The stock appears significantly undervalued,” Trauner, a Miami-based money manager at GoodHaven Capital Management LLC, said in a phone interview. “Whitman’s strategies of foregoing large acquisitions, focusing on product design and development, and retooling the sales force are all sensible thoughts going forward.”

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

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


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Companies Mentioned

  • WYNN
    (Wynn Resorts Ltd)
    • $145.1 USD
    • 6.13
    • 4.22%
  • INTC
    (Intel Corp)
    • $37.02 USD
    • 0.78
    • 2.11%
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