U.S. stocks retreated for a fourth day, while Treasuries gained, as Senate Majority Leader Harry Reid said nothing is happening in budget talks and the nation appears to be headed toward the fiscal cliff. The yen weakened.
The Standard & Poor’s 500 Index tumbled 1.1 percent to 1,404.31 at 2:12 p.m. in New York, with trading volume 18 percent below the 30-day average at this time of day. The VIX, the benchmark gauge of U.S. equity options, rallied for a sixth day. Ten-year Treasury yields were down five basis points at 1.71 percent and commodities declined. The yen fell 0.5 percent to 86.08 per dollar, near the lowest level since August 2010.
Equities extended declines as Reid said a resolution to the budget dispute before Jan. 1 appears unlikely because Republicans won’t cooperate, pushing the U.S. closer to more than $600 billion in automatic tax increases and spending cuts set to begin in 2013. The budget impasse in Washington helped trigger a worse-than-forecast drop in the Conference Board’s gauge of consumer confidence in December, the group said today.
“Markets are digesting the possibility of at least a brief visit over the cliff,” Jim Russell, the Cincinnati-based chief equity strategist at U.S. Bank Wealth Management, which oversees about $113 billion, said in a telephone interview. Investors “understand that it usually takes a crisis in Washington to get anything done,” he said.
Treasury Secretary Timothy F. Geithner said yesterday the government will hit its statutory debt ceiling on Dec. 31 and he will take “extraordinary measures” to postpone a U.S. default for about two months, allowing more time for lawmakers to agree on a deficit-reduction deal.
The S&P 500 fluctuated in early trading before turning lower after the Conference Board’s consumer sentiment gauge slid to 65.1, below the median forecast of economists in a Bloomberg survey for a reading of 70 and down from the revised 71.5 reading for the prior month.
Other reports showed U.S. jobless claims fell by 12,000 to 350,000 last week, less than the 360,000 median estimate in a survey of economists. Purchases of new homes climbed 4.4 percent to a 377,000 annual pace, the most since April 2010, following a revised 361,000 rate in October, the Commerce Department reported today. The median estimate of 71 economists surveyed by Bloomberg called for sales to increase to 380,000.
JPMorgan Chase & Co., Bank of America Corp. and Cisco Systems Inc. lost more than 2.2 percent to lead declines in all 30 stocks in the Dow Jones Industrial Average. Financial, commodity and technology shares led losses in all 10 of the main groups in the S&P 500.
Marvell Technology Group Ltd. fell 4.5 percent after being downgraded by JMP Securities LLC. BCD Semiconductor Manufacturing Ltd. almost doubled after Diodes Inc. agreed to buy the company for $151 million.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, rose 5.5 percent to 20.55 today, the highest since July. The gauge has jumped 32 percent in six days for its biggest increase since May.
Cotton, natural gas and wheat lost at least 0.8 percent to lead declines in 15 of 24 commodities tracked by the S&P GSCI Index, which slipped 0.2 percent. Crude oil fell 0.4 percent to $90.63 a barrel in New York.
The Stoxx Europe 600 Index closed up less than 0.1 percent after gaining as much as 0.3 percent. The regional benchmark has rallied 15 percent in 2012, on course for the biggest annual gain since 2009. Bankia plunged 20 percent as Spain’s bank- rescue fund said the lender has a negative value of 4.15 billion euros. Clariant AG, a Swiss chemical company, climbed 3 percent after selling units for 502 million Swiss francs ($550 million).
In European bond markets, Italian, Spanish and Greek debt declined, while U.K. gilts and German bunds advanced. Italian 10-year yields climbed six basis points to 4.53 percent after a debt auction.
Italy sold 3.25 billion euros of zero-coupon securities maturing in 2014 to yield 1.884 percent compared with 1.923 percent Nov. 27. The sale is the first since Prime Minister Mario Monti announced on Dec. 23 that he would consider being a candidate for premier in elections on Feb. 24-25.
The MSCI Asia Pacific Index rose 0.4 percent, led by Japanese exporters and financial companies. The gauge has risen 13 percent this year. The Nikkei 225 Stock Average climbed 0.9 percent to the highest level since March 2011.
The yen was weaker against all 16 major peers tracked by Bloomberg. Japan’s consumer prices excluding fresh food fell 0.1 percent last month from a year earlier, according to the median estimate in a Bloomberg survey. That would be the sixth decline in seven months and compares with the Bank of Japan’s target of 1 percent inflation.
A drop in core consumer prices would support newly installed Prime Minister Shinzo Abe’s case to add stimulus.
Further depreciation of the yen versus the dollar is one of the surest bets going into the new year, according to John Taylor, founder and chairman of New York-based currency hedge fund FX Concepts LLC. The yen will weaken to 90 per dollar before a resumption in risk aversion prompts investors to return to traditional refuge currencies, he said.
The Japanese currency has tumbled 14 percent this year, the biggest drop among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar is the second-worst performer with a 3 percent slide, while the euro has lost 0.5 percent. Norway’s krone is the best performer, climbing 4.7 percent, the indexes show.
The Istanbul Stock Exchange National 100 Index advanced for a fourth day, rising 0.6 percent to a record 78,454.19. Turkey was raised to investment grade by Fitch Ratings last month.