U.S. stocks erase gains as finance chiefs meet on Greece aid

November 12, 2012 12:31 PM

U.S. stocks erased gains, failing to rebound after the Standard & Poor’s 500 Index’s biggest weekly retreat since June, as investors awaited budget talks in Washington and European finance chiefs met to discuss Greek aid.

Jefferies Group Inc. jumped 14 percent after Leucadia National Corp. said it will buy the investment bank. Titanium Metals Corp. surged 43 percent after Precision Castparts Corp. agreed to buy the maker of titanium products. An S&P index of homebuilders slid 4.1 percent as D.R. Horton Inc.’s chief executive officer cautioned that weak employment growth could hurt sales of new homes. Apple Inc. slumped 0.8 percent after dropping for seven straight weeks.

The S&P 500 rose less than 0.1 percent to 1,380 at 4 p.m. in New York, after gaining as much as 0.4 percent earlier in the trading session. The Dow Jones Industrial Average dropped 0.23 point, or less than 0.1 percent, to 12,815.16.

“The last month has been very weak for the market,” Robert Stimpson, a money manager at Akron, Ohio-based Oak Associates Ltd., which oversees about $850 million, said in a phone interview. “The political concerns in Europe and the U.S. add volatility on a daily basis.”

Fewer than 292 million shares of New York Stock Exchange- listed companies changed hands on the NYSE, the least in Bloomberg data going back to 2003, as the Big Board canceled trading and closing auctions in 216 securities after an outage in a computer that matches orders and processes transactions.

Fiscal Cliff

U.S. stocks had their biggest weekly decline in five months as President Barack Obama’s re-election set up a budget showdown with the Republican-controlled House of Representatives. The S&P 500 fell 2.4 percent over five days last week, and has lost 5.3 percent since Oct. 18. The index is up 9.7 percent for the year through today.

If Congress doesn’t act by the end of the year, $607 billion in automatic spending cuts and tax increases are scheduled to take effect starting in January. Obama invited the top Democratic and Republican leaders in Congress to the White House this week to begin talks on a plan to avert the so-called fiscal cliff.

“What people don’t like in markets is uncertainty,” said Gilles Sitbon, who helps oversee $1.9 billion at Sycomore Asset Management in Paris. “People are waiting for one thing that could make the market go down. People are ready to pull the trigger. And if nothing happens, then you can get a grind higher. It’s confidence building.”

‘Large Risks’

Euro-area finance ministers met in Brussels today. While the ministers will probably not approve 31.5 billion euros ($40 billion) of financial aid to Greece, they will agree to prevent the country from defaulting on 5 billion euros of bills that mature on Nov. 16, a European official said on Nov. 9.

The so-called troika that oversees euro-area Greece’s bailouts said it sees “very large risks” to the Greek program, according to a draft report obtained by Bloomberg News. The troika comprises the European Commission, the European Central Bank and the International Monetary Fund.

Phone and health-care stocks rose the most among 10 groups in the S&P 500 today, while utilities and technology companies had the biggest declines. United Technologies Corp. increased 1.5 percent to $76.95. AT&T Inc. advanced 1 percent to $33.87.

Jefferies gained 14 percent to $16.27. Leucadia, the largest shareholder of Jefferies with a 29 percent stake, agreed to buy the the portion of the company it doesn’t already own for about $2.8 billion. Investors will receive 0.81 Leucadia share for each Jefferies share they own, the companies said today in a statement, valuing the entire company at $3.59 billion. New York-based Leucadia fell 3 percent to $21.14.

Titanium Metals

Titanium Metals surged 43 percent to $16.50. Precision Castparts, the maker of metal forgings for jet engines, agreed to buy Texas billionaire Harold Simmons’s Titanium Metals for $2.9 billion in its largest acquisition in almost two decades. Titanium Metals’ stockholders will get $16.50 a share, 44 percent more than the Dallas-based company’s closing price on Nov. 8, according to a statement after markets closed on Nov. 9. Precision Castparts added 4.9 percent to $179.69.

Sherwin-Williams Co. climbed 5.8 percent, the biggest gain since September 2011, to $149.06. The largest U.S. paint retailer agreed to acquire closely held Consorcio Comex SA de CV for about $2.34 billion including debt to gain Mexico’s largest paint maker as housing demand improves.

Gilead Sciences Inc. rose 14 percent to $73.93 after a combination of its experimental hepatitis C therapies cleared the virus in 100 percent of patients in a trial. Gilead, the world’s largest maker of HIV medicines, is among several drugmakers racing to develop new hepatitis C treatments that act faster with fewer side effects than the current standard of care.

Homebuilders Tumble

Celgene Corp., the fourth-largest biotechnology company, gained 5.8 percent to $75.66. The drugmaker reported its medicine for pancreatic cancer met goals of a late-stage study.

All 11 members in the Supercomposite Homebuilding Index dropped, with D.R. Horton Inc. losing 5.8 percent to $19.40. The largest U.S. homebuilder by volume fell after CEO Donald Tomnitz cautioned during a conference call that employment growth will remain weak next year, potentially hurting sales of new houses.

Atlanta-based Beazer Homes USA Inc., which isn’t part of the S&P index, declined 17 percent to $13.77 after reporting a wider-than-estimated fourth-quarter loss.

The S&P 500 Utilities Index fell for the eighth straight trading day, the longest losing streak in 10 years. The benchmark, which includes companies such as Duke Energy Corp. and Dominion Resources Inc., lost 0.8 percent and closed at the lowest level since April.

Apple Falls

Apple fell 0.8 percent to $542.83, after gaining as much as 1.4 percent earlier in the day. The shares have dropped 23 percent from their September high. Apple hasn’t been able to keep up with demand for the latest version of the iPhone, which accounts for about two-thirds of the company’s profit.

J.C. Penney Co. tumbled 13 percent to $17.97, the lowest price since March 2009, as the department-store chain’s third- quarter sales plunge fueled investor concern about the viability of Chief Executive Officer Ron Johnson’s turnaround plan. The shares fell 4.8 percent on Nov. 9 after the company reported a third-quarter loss greater than analysts estimated.

The New York Stock Exchange canceled trading and closing auctions in 216 securities today after a malfunction in a computerized “matching engine.”

The affected stocks, which included such companies as Travelers Cos. and U.S. Steel Corp., continued to trade on other exchanges, including the Nasdaq Stock Market. The exchange anticipates a “normal trading day in all securities tomorrow,” according to an e-mail to traders.

Recession Risk

“We’re watching the news headlines which will all be about the fiscal cliff for the next six weeks,” Thomas Nyheim, a Wilmington, Delaware-based fund manager for Christiana Trust, which oversees about $15 billion, said in a phone interview.

Should policy-makers fail to reach an agreement on the fiscal cliff and the automatic spending cuts and tax increases go into effect at the beginning of 2013, the U.S. would enter a recession and could experience its second credit downgrade, according to Oppenheimer & Co. S&P cut its AAA rating in August 2011 after an impasse on the debt ceiling. The Dow alternated between losses and gains of 400 points on four days during that month, the longest streak on record.

“Even though the U.S. has already weathered a downgrade earlier in the process of the current economic recovery, a second downgrade might not be as easily digested or received by the markets and foreign investors as the first,” John Stoltzfus, chief market strategist at Oppenheimer, wrote in a note today.

Likely Up

David Bianco, Deutsche Bank AG’s chief U.S. equity strategist, said the next 5 percent move in the S&P 500 is likely up and advised clients to use the dip to buy growth stocks. He cut his 2012 estimate for the benchmark index to 1,450 from 1,475, while reiterating a 12-month forecast of 1,500.

“We still believe that the fiscal cliff will be averted with compromise legislation, but President Obama’s re-election and a larger Democrat majority in Senate raise the likely amount of tax hikes vs. spending cuts in the new legislation,” Bianco wrote in a Nov. 9 report.

Bloomberg News

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