Bloomberg News

U.S. Stocks Fall as Budget-Impasse Concerns Grow

September 27, 2013

The New York Stock Exchange

Traders work on the floor of the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

U.S. stocks fell, giving the Standard & Poor’s 500 Index its first weekly drop since August, as concern grew that the budget impasse will hurt economic growth in the world’s largest economy.

Accenture Plc slid 2.4 percent on a disappointing profit projection. United Continental (UAL:US) Holdings Inc. dropped 9.3 as the world’s largest carrier cut its third-quarter forecast for a benchmark revenue gauge. J.C. Penney Co. sank 13 percent after the retailer began selling 84 million shares to raise as much as $932 million in cash. Nike Inc. (NKE:US) surged 4.7 percent as fiscal first-quarter profit topped analysts’ estimates.

The S&P 500 (SPX) fell 0.4 percent to 1,691.75 at 4 p.m. in New York. The Dow Jones Industrial Average lost 70.06 points, or 0.5 percent to 15,258.24. About 5.5 billion shares changed hands on U.S. exchanges, 5.7 percent below the three-month average.

“There is nothing in the economic data I can see that tells me I should worry about a recession,” Sam Wardwell, an investment strategist at Pioneer Investments in Boston, said in a phone interview. His firm oversees about $217 billion. “A government shutdown would be a fiscal cliff that’s big enough in this case to drive the economy into a recession and I think that the market is increasingly worried about that risk because the risk seems to be rising.”

The S&P 500 dropped six of the past seven sessions, including a 1.1 percent slide this week, amid the Congressional impasse over the budget that threatens to shut down the government. The index rose 0.3 percent yesterday, snapping its longest losing streak this year, after an unexpected drop in jobless-benefit claims.

Budget Showdown

The U.S. Senate voted today to finance the government through Nov. 15 after removing language to choke off funding for the health care law. The bill now returns to the House, setting up a weekend of negotiating and brinkmanship that could continue until spending authority expires on Sept. 30.

Congress must also reach a deal to avoid hitting the limit on the government’s ability to borrow. Treasury Secretary Jacob J. Lew said the extraordinary measures being used to avoid breaching the debt ceiling “will be exhausted no later than Oct. 17.” Failure to increase the debt cap could lead to a downgrade of the government’s credit rating.

President Barack Obama said that Congress’s failure to approve funding to keep the government open and an increase in the debt ceiling would have a destabilizing effect on the economy.

A federal shutdown would cut fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, economists said. The Office of Management and Budget estimated 30 days of shutdowns in 1995 and 1996 cost more than $1.4 billion, or $2.09 billion in today’s dollars.

Portfolio Rebalancing

Today’s slide trimmed the S&P 500’s third-quarter rally to 5.3 percent. That compared with a 0.7 percent loss in U.S. Treasuries, according to data compiled by Bloomberg and Bank of America Corp. Investors should expect $23.5 billion in selling of equities and buying of bonds as pension fund managers rebalance their portfolios at the end of the third quarter, Ramon Verastegui, head of engineering and strategy at Societe Generale SA in New York, wrote in a Sept. 25 note.

“The momentum isn’t terrible, but has basically been progressively weakening,” Jim Welsh, a market strategist who helps oversee $5.7 billion at Forward Management LLC in San Francisco, said in a phone interview. “The market is vulnerable to the largest correction so far this year, and it just comes down to what kind of news shows up, whether it turns out to be because of Congress, or whatever.”

Fed Watch

The S&P 500’s biggest retreat in 2013 was the 5.8 percent slide that started May 21, when Federal Reserve Chairman Ben S. Bernanke first suggested the central bank could cut monetary stimulus this year. The gauge is down 2 percent since closing at a record Sept. 18, after the Fed unexpectedly refrained from slowing its monthly bond purchases. The stimulus has helped the S&P 500 rally as much as 155 percent from its 2009 low.

Investors have been weighing data to determine whether economic growth is strong enough to prompt the Fed to begin tapering at its next meeting in October. Fed Bank of New York President William C. Dudley said today he wants to see more momentum in the economy before making cuts.

The showdown in Washington “creates uncertainty about the fiscal outlook and may exert a restraining influence on household and business spending,” he said.

A report today indicated consumer spending rose in August for a fourth consecutive month, as a pickup in incomes bolstered the biggest part of the economy. Separate data showed confidence among consumers declined to a five-month low in September as Americans’ views on the economy dimmed.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index (VIX), the gauge of S&P 500 options prices known as the VIX, jumped 10 percent to 15.46. The measure has advanced 18 percent this week.

Eight out of 10 S&P 500 main industries fell today as materials and telephone shares sank at least 1 percent for the worst performance.

International Paper Co. dropped 3.9 percent to $45.44, its eighth retreat in the past nine session to lead declines among raw-materials producers. The world’s largest maker of office paper could be forced to shut down some capacity as the industry faces an increasing supply amid sluggish demand, Mark Wilde, an analyst with Deutsche Bank AG, said in a note. He cut the stock’s rating to hold from buy.

Accenture (ACN:US) slipped 2.4 percent to $74.09. The world’s second-largest technology-consulting company forecast earnings that may fall short of analysts’ estimates amid increasing competition from Indian providers.

International Business Machines Corp., the largest technology-services provider, lost 1.7 percent to $186.92.

United Continental

United Continental slid 9.3 percent to $30.91. Revenue for each seat flown a mile will increase 2.5 to 3.5 percentage points, according to a filing yesterday, a range that the carrier said was about 1 percentage point less than previous projections. It cited lower fares on some overseas flights operated in conjunction with other airlines and rivals adding seats on China routes.

J.C. Penney (JCP:US) lost 13 percent to $9.05, extending its weekly loss to 30 percent. The stock has plunged the past five days to its lowest since 2000 after a Goldman Sachs Inc. debt analyst said cash will be strained this quarter. J.C. Penney said today it will end the fiscal year with about $1.3 billion in liquidity, excluding the offer proceeds.

International Game Technology dropped 7 percent to $19.23. The world’s largest maker of slot machines was cut to hold from buy at Deutsche Bank. The stock’s price has reflected expectations for increasing returns to shareholders while the gaming industry is likely to become “more challenged,” analyst Carlo Santarelli wrote in a note to clients.

Painkiller Study

Nektar Therapeutics (NKTR:US) tumbled 24 percent, its biggest slide in five years, to $10.54. The company said a study of the slow-release painkiller NKTR-181 showed it failed to meet the primary endpoint of a Phase 2 study, citing an “unusual lack” of a gain in pain scores for patients taking a placebo.

Nike gained 4.7 percent, the most in the Dow, to $73.64. The world’s largest sporting-goods company posted fiscal first-quarter profit that topped analysts’ estimates after demand for running and basketball shoes helped North American sales.

Microsoft Corp. climbed 1.5 percent to $33.27 for the second-biggest gain in the Dow.

Cerner (CERN:US) Corp. rallied 8 percent, the most in the S&P 500, to a record $52.61. The provider of electronic medical records said it reached a multiyear agreement to provide services to Intermountain Healthcare.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • UAL
    (United Continental Holdings Inc)
    • $64.93 USD
    • 2.45
    • 3.77%
  • NKE
    (NIKE Inc)
    • $96.29 USD
    • 0.32
    • 0.33%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus