U.S. Stocks Decline Amid Concerns Over Federal Budget
<cite class="byline" style="margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 11px; vertical-align: baseline; background-color: transparent; width: 640px; color: rgb(111, 111, 111); display: block; font-style: normal; line-height: 1.3em; position: static !important; background-position: initial initial; background-repeat: initial initial;">By Lu Wang - Sep 27, 2013 11:34 PM GMT+0800</cite>
U.S. stocks fell, with the Standard & Poor’s 500 Index headed for its first weekly drop since August, amid concern the budget impasse will hurt economic growth in the world’s largest economy.
United Continental Holdings Inc. dropped 6.7 as the world’s largest carrier cut its third-quarter forecast for a benchmark revenue gauge. J.C. Penney Co. slid 8.9 percent after the retailer began selling 84 million shares to raise as much as $932 million in cash. Nektar Therapeutics tumbled 26 percent after a study of the slow-release painkiller NKTR-181 failed to meet its goals. Nike Inc. (NKE) surged 5 percent as fiscal first-quarter profit topped analysts’ estimates.
The S&P 500 fell 0.5 percent to 1,690.40 at 11:32 a.m. in New York. The Dow Jones Industrial Average retreated 84.93 points, or 0.6 percent to 15,243.37. Trading in S&P 500 stocks was 18 percent above the 30-day average at this time of day.
“The data does seem to be seeing some improvement here, but with the overhang from Washington, that clouds the outlook for the immediate future,” Derek Hamilton, a global economist at Waddell & Reed Financial Inc. in Overland Park, Kansas, said in a phone interview. His firm manages $114 billion. “If we do have an extended government shutdown, and more importantly, an inability to pass the debt ceiling raise, that will probably have a fairly significant impact on the stock market.”
The S&P 500 has declined six of the past seven sessions and has slid 1.1 percent this week amid concern that Congress will fail to approve a federal budget before Monday’s deadline, leading to a government shutdown. 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 plans to vote today on a spending bill, three days before federal spending authority runs out. House Speaker John Boehner said yesterday his chamber wouldn’t pass a “clean” bill after the Senate acts and then said he has “no interest in seeing a government shutdown.”
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.
A federal shutdown would reduce fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, economists said, as government workers from park rangers to telephone receptionists are furloughed. 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 (SPX)’s third-quarter rally to 5.2 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 fiscal showdown in Washington has overshadowed concern that continued economic growth will prompt the Fed to begin tapering at its next meeting in October. The stimulus has helped the S&P 500 rally as much as 155 percent from its 2009 low.
A report today showed consumer spending rose in August for a fourth consecutive month, as a pickup in incomes bolstered the biggest part of the economy. The Thomson Reuters/University of Michigan final index of consumer sentiment for September fell to 77.5, below the median reading of 78 forecast by economists in a Bloomberg survey.
The Chicago Board Options Exchange Volatility Index (VIX), the gauge of S&P 500 options prices known as the VIX, jumped 6.3 percent to 14.94. The measure has advanced 14 percent this week.
All 10 S&P 500 main industries fell as telephone, materials and consumer-staples shares sank more than 0.9 percent for the worst performance.
United Revenue
United Continental slid 6.7 percent to $32.02. 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 Chicago-based 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.
The Bloomberg U.S. Airlines Index dropped 1.9 percent, halting a three-day rally.
J.C. Penney lost 8.9 percent to $9.49, extending its weekly loss to 27 percent. The stock has plunged this week to its lowest since 2013 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.
Drugs, Coal
Nektar Therapeutics (NKTR) plunged 26 percent to $10.28. The company said the painkiller 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.
Arch Coal Inc. (ACI), a U.S. coal producer, fell 3.2 percent to $4.40 as Goldman Sachs Group Inc. downgraded the stock to sell from neutral.
Nike gained 5 percent to $73.83. The world’s largest sporting-goods company said net income in the quarter ended Aug. 31 rose 38 percent to $780 million from $567 million a year earlier. Earnings per share from continuing operations were 86 cents. The average of estimates compiled by Bloomberg was 78 cents.
To contact the reporters on this story: Lu Wang in New York at [email protected]
To contact the editors responsible for this story: Lynn Thomasson [email protected]
