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A fiscal cliff for stock prices

  • Article by: NIKOLAJ GAMMELTOFT
  • Bloomberg News
  • November 14, 2012 - 9:07 PM

NEW YORK - U.S. stocks fell Wednesday, sending the Dow Jones industrial average to its lowest level since June.

The Standard & Poor's 500 index fell 1.4 percent to 1,355.49. The S&P 500 has fallen 5.1 percent since President Obama's re-election set up a budget showdown with the Republican-controlled House of Representatives. The benchmark gauge is down 7.5 percent from an almost five-year high on Sept. 14.

The Dow lost 185.23 points, or 1.5 percent, to 12,570.95, the lowest level since June 26. The Nasdaq composite index slid 1.3 percent to 2,846.81, dropping more than 10 percent from its almost 12-year closing high in September, in what is known as a correction.

Obama is negotiating to reach a deficit-reduction deal with Congress to avert $607 billion in automatic tax increases and spending cuts, or the so-called fiscal cliff. He said in a White House news conference that voters sent a "very clear message" on Nov. 6 that they want both parties to stop bickering over politics and take the necessary steps to cut the budget deficit through a combination of tax increases for the wealthy and cuts in spending.

The president's remarks spurred concern lawmakers were not making progress in reaching an agreement to avert the fiscal cliff. Obama will sit down with Democratic and Republican congressional leaders Friday for an opening round of negotiations.

Retail sales in the United States fell in October for the first time in four months, influenced by the effects of superstorm Sandy, which hurt receipts for some and helped for others. Wholesale prices unexpectedly declined for the first time in five months as energy and vehicle costs dropped.

A number of Federal Reserve officials said the central bank may need to expand its monthly purchases of bonds next year after the expiration of Operation Twist, according to minutes of their last meeting released Wednesday.

Under Operation Twist, scheduled to end in December, the Fed is swapping short-term Treasurys on its balance sheet for longer-term debt. The Fed, in addition, is buying $40 billion in mortgage-backed securities in a third round of so-called quantitative easing.

All 10 groups in the S&P 500 slid Wednesday, with raw-material, financial and industrial shares dropping at least 1.7 percent. FedEx tumbled 3.7 percent to $87.12. Boeing erased 2.8 percent to $71.29. Bank of America slumped 3.6 percent to $8.99, for the biggest drop in the Dow, while JPMorgan declined 1.9 percent to $39.29.

Home Depot fell 3 percent to $61.47. The largest U.S. home-improvement retailer retreated after reaching the highest level since 2000 Tuesday as profits beat estimates. The stock was downgraded to the equivalent of hold by analysts at Gabelli & Co. and Raymond James & Associates.

Advanced Micro Devices fell 7.7 percent to $1.93, after a 5 percent rally Tuesday. The second-largest maker of personal-computer processors said it isn't actively pursuing a sale of the company or a significant sale of assets. The statement came after Reuters reported yesterday that AMD hired JPMorgan to explore options, including a potential sale of the company or its patent portfolio.

Mosaic fell 3.3 percent to $49.10. The Plymouth-based fertilizer producer may further reduce its output of potash amid lower-than-expected global demand for the crop nutrient, Chief Financial Officer Larry Stranghoener said Wednesday. The company Tuesday cut its fiscal second-quarter forecast for potash and phosphate shipments as international buyers delay purchases.

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