U.S. stocks sank, paring the weekly gain in the Standard & Poor’s 500 Index, after House Republican leaders canceled a vote on higher taxes for top earners and sent budget talks deeper into turmoil.
Bank of America Corp. lost 2 percent for the biggest decline in the Dow Jones Industrial Average. Micron Technology Inc. slumped 6.9 percent after posting a wider first-quarter loss. Research In Motion Ltd. tumbled 23 percent after the BlackBerry maker said it will overhaul service fees. Nike Inc. advanced 6.2 percent as the world’s largest sporting-goods company’s profit exceeded analysts’ projections.
The S&P 500 retreated 0.9 percent to 1,430.15 today, marking its biggest drop since Nov. 14. It has still advanced 14 percent this year, heading toward the biggest annual gain since 2009. The Dow slid 120.88 points, or 0.9 percent, to 13,190.84 today.
“With such a staunch group in the House, it looks as if the odds of going into 2013 without a deal have increased,” Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees about $130 billion in assets, said by telephone. “I don’t know whether we’re going to reach a deal, when we’re going to reach a deal, if there’s going to be a deal. It’s just a complete wild card at this point.”
Trading in S&P 500 companies was about 52 percent higher than the 30-day average as all 10 industry groups fell. The index, which rallied earlier this week on signs budget talks were progressing, pared its weekly gain to 1.2 percent today. The Congressional Budget Office has said that the U.S. may slip into a recession if lawmakers fail to pass a budget that averts more than $600 billion of automatic tax-and-spending changes scheduled to start in January.
Stocks rose yesterday as House Speaker John Boehner said he expects to keep working on a budget plan with President Barack Obama. Futures dropped later as Boehner scrapped a vote on a plan to allow higher tax rates on annual income above $1 million, yielding to anti-tax resistance within his own party.
House members and senators won’t vote on the end-of-year budget issues until after Christmas, giving them less than a week to reach agreement to avert the so-called fiscal cliff. Boehner called upon Obama and Senate Majority Leader Harry Reid to come up with legislation to avoid the fiscal cliff.
“We still have to think of a 2 percent fiscal drag on the economy in the first half of 2013,” Otto Waser, chief investment officer at Research & Asset Management AG in Zurich, said in a Bloomberg Television interview today. “That will inevitably mean a slowdown in the U.S. economy and probably some pressure on the markets. There is nothing certain at the moment.”
Reports today showed spending by U.S. consumers climbed in November as Americans pushed aside the threat of higher taxes next year, buying gifts for the holidays and making up for shopping lost to superstorm Sandy. Purchases rose 0.4 percent last month after a 0.1 percent drop in October, Commerce Department figures showed. The gain matched the median forecast of 80 economists surveyed by Bloomberg. Incomes rebounded after being depressed in October by lost wages due to Sandy.
A separate report showed demand for goods such as machinery and electronics climbed more than forecast in November. Orders for durable goods increased 0.7 percent last month after a 1.1 percent gain in October. The advance exceeded the median forecast of economists for a 0.3 percent rise.
Phone, financial and energy stocks posted the biggest losses among S&P 500 groups, falling at least 1.1 percent.
Bank of America, the second-largest U.S. bank by assets, declined 2 percent to $11.29. Citigroup Inc. dropped 1.7 percent to $39.49, while JPMorgan Chase & Co. lost 1.2 percent to $44.
Micron Technology slumped 6.9 percent to $6.32 for the biggest retreat in the S&P 500. The largest U.S. maker of memory chips reported a wider fiscal first-quarter loss as a slump in demand for personal computers led to a supply glut, weighing down prices.
Research In Motion slid 23 percent to $10.91. Subscribers who want enhanced services, including advanced security, will continue to pay a fee, while others who don’t use such services “are expected to generate less or no service revenue,” Chief Executive Officer Thorsten Heins said on a conference call yesterday. Service fees account for more than a third of revenue in the last quarter.
Next page: Nike, VIX
Nike rallied 6.2 percent to $105.10 after second-quarter profit of $1.14 per share topped the average analyst estimate of $1 per share. That excludes the $137 million in losses associated with the Umbro and Cole Haan businesses Nike is selling or has sold.
Red Hat Inc. rose 4.5 percent to $54.99. The company reported third-quarter sales of $343.6 million in the period that ended Nov. 30, compared with the average analyst forecast of $338.1 million.
Ameristar Casinos Inc. surged 20 percent to $26.50. Pinnacle Entertainment Inc. agreed to buy the Las Vegas-based company for $900 million, more than doubling in size to 17 casino resorts. Pinnacle jumped 21 percent to $16.20.
Risk perceptions for U.S. equities have risen to the highest level in four years compared with European stocks as the American economy faces a recession should lawmakers fail to reach a budget agreement.
The Chicago Board Options Exchange Volatility Index, the gauge of Standard & Poor’s 500 Index option prices, rose to 17.67 this month through yesterday, according to data compiled by Bloomberg. That’s the highest level since December 2008 versus Europe’s VStoxx Index, which closed at 15.76 yesterday. U.S. equities are lagging behind Europe, with the S&P 500 up 13 percent from its June 1 low, while the Stoxx Europe 600 Index has gained 20 percent since then.
The VIX jumped 1 percent to 17.84 today, as the VStoxx climbed 14 percent to 17.89.
“The relative prices of risk prices have been suggesting that risk has become more US centric,” Dean Curnutt, chief executive officer of New York-based Macro Risk Advisors LLC which specializes in derivatives strategy, wrote in a note today. It “points to the fear in the market that U.S. politicians will be unable to pass a fiscal cliff resolution.”