Bloomberg News

U.S. Stocks Drop as Budget Deal Spurs Bets on Fed Cuts

December 11, 2013

NYSE

A trader chews bubble gum while working on the floor of the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

U.S. stocks fell a second day, giving the Standard & Poor’s 500 Index its biggest back-to-back drop in two months, as a congressional budget accord fueled speculation the Federal Reserve could trim stimulus next week.

Cisco Systems Inc. lost 1.6 percent after losing a European Union court bid to overturn approval of Microsoft Corp.’s 2011 takeover of Skype Technologies SA. Laboratory Corp. of America Holdings plunged 11 percent after issuing a profit forecast below analysts’ estimates. MasterCard Inc. (MA:US) climbed 3.5 percent after saying its board of directors approved an 83 percent dividend increase (MA:US) and a 10-for-1 stock split.

The S&P 500 dropped 1.1 percent to 1,782.22 at 4 p.m. in New York, extending its two-day slide to 1.5 percent from a record on Dec. 8. Today’s retreat was the biggest since Nov. 7. The Dow Jones Industrial Average fell 129.60 points, or 0.8 percent, to 15,843.53. About 6.5 billion shares changed hands on U.S. exchanges, 6.5 percent above the three-month average.

“We’ve moved much closer for the Fed to taper in December,” Jeffrey Kleintop, chief market strategist at LPL Financial LLC in Boston, said in a telephone interview. “Markets are increasing their views that we are a week or so away from tapering because of improving economic data and clearing the hurdle for a budget deal. This deal is great, it’s a positive, but also a negative because it could prompt the Fed to taper sooner.”

The S&P 500 fell 0.3 percent yesterday after reaching a record 1,808.37 the day before. Fed stimulus has helped propel the benchmark gauge higher by as much as 167 percent from its bear-market low in 2009. The index has rallied 25 percent this year and is challenging 2003 for the biggest annual jump since 1998.

Fed Meeting

Investors are considering when the central bank, which meets next week, will reduce the pace of its monthly bond buying. Fed officials cited the drag from fiscal policy in their Oct. 30 statement and Jeffrey Lacker, president of the Richmond Fed, said in a speech Dec. 9 that budget uncertainty is weighing on business investment decisions.

Congressional negotiators yesterday agreed to a budget deal that would ease automatic spending cuts by about $60 billion over two years and will reduce the deficit by $20 billion to $23 billion. The budget compromise, which needs to pass both chambers of Congress, doesn’t raise the U.S. debt limit, setting up another potential fiscal showdown after February.

Fitch Ratings said the proposal signals “an improvement in the functioning of budget policy making” and suggests a reduced risk that political brinkmanship will cause another government shutdown or debt ceiling crisis.

Budget Deal

“The budget deal itself is at best a signal that we won’t shut the government down at the start of the new year,” Alexander Friedman, chief investment officer at UBS AG’s wealth-management unit, told Anna Edwards on Bloomberg Television. “It’s a low base that we’re declaring victory from. The key message for 2014 is the real economy is getting better. For investors however, it’s probably not going to be the same sugar high we’ve seen for the last five years.”

The deal comes after data last week showed the jobless rate fell to a five-year low and the U.S. economy expanded in the third quarter at a rate faster than initially estimated. Data later this week on retail sales, initial jobless claims and producer prices will provide clues on whether growth is strong enough for the Fed to curb stimulus measures.

The Federal Open Market Committee will probably start slowing its $85 billion in monthly bond purchases at its Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, an increase from 17 percent in a Nov. 8 survey. Nine of the 35 economists surveyed said the central bank will buy fewer bonds from its January meeting and the remaining 14 predicted that tapering will start in March.

Volatility Gauge

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX (VIX), rose 11 percent percent to 15.42 for the biggest advance since Oct. 15. Today’s gain trimmed the measure’s decline for the year to 14 percent.

Nine of 10 main S&P 500 retreated today. Materials and health-care companies paced declines, with each falling more than 1.6 percent as a group. UnitedHealth Group Inc. dropped 2.6 percent to $72.14 for the second-biggest drop in the Dow.

LabCorp plunged 11 percent to $88.25 for the steepest slide in the S&P 500. The provider of laboratory-testing services said it expects 2014 earnings to be below the average of analyst estimates in a Bloomberg survey.

Quest Diagnostics Inc. dropped 5.8 percent to $55.20, the fifth retreat in the past six sessions that left the stock at the lowest level since June.

Avanir, Cisco

Avanir Pharmaceuticals Inc. tumbled 30 percent, the most in seven years, to $3.01. The drugmaker said that the phase II study of AVP-923, a treatment for patients with multiple sclerosis, did not meet the primary efficacy endpoint.

Cisco lost 1.6 percent to $20.88. The company “failed to demonstrate” that the EU was wrong to find the merger in line with the bloc’s internal market, the EU General Court ruled today. The Microsoft-Skype merger “does not restrict competition” in the markets for consumer- and business-video communications, said the court.

MasterCard climbed 3.5 percent to $790.57, extending a record after rising for a fifth straight day. The second-biggest bank-card network raised its quarterly dividend to $1.10 a share and authorized repurchasing (MA:US) as much as $3.5 billion of stock. Investors who own MasterCard stock on Jan. 9 will get the additional shares on Jan. 21, the Purchase, New York-based company said yesterday.

Visa Inc. rallied 3.1 percent to a record $205.66 for the biggest advance in the Dow.

Scripps, Discovery

Scripps Networks Interactive Inc. surged 7.6 percent to $81 for the biggest gain in the S&P 500. (SPX) Discovery Communications Inc. might make an offer for the owner of HGTV and the Food Network, Variety reported, citing an unidentified person who attended a board meeting yesterday where the idea was discussed. The publication didn’t provide possible terms.

Discovery operates cable television channels Animal Planet and TLC. Its shares lost 0.8 percent to $84.53.

Urban Outfitters Inc. climbed 3.1 percent to $36.84. The operator of the Anthropologie and Free People stores said fourth-quarter sales at locations open at least 13 months have been rising at a mid-single-digit rate.

Home Depot Inc. rose 0.5 percent to $79. The largest U.S. home-improvement retailer said it will meet a profitability goal a year earlier than planned as rising housing prices prompt an increase in renovations. Operating margin will expand to 12 percent by the year ending January 2015.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Callie Bost in New York at cbost2@bloomberg.net

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


Steve Ballmer, Power Forward
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • MA
    (MasterCard Inc)
    • $71.56 USD
    • 0.70
    • 0.98%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus