U.S. Stocks Decline on Outlook for Budget Talks

U.S. stocks slumped, giving the Standard & Poor’s 500 Index its longest decline since September, as concern grew that $1.2 trillion in automatic federal budget cuts will be triggered if lawmakers fail to reach a deal.

All 10 industries in the benchmark measure declined as 468 out of 500 companies retreated. Bank of America Corp. tumbled 5 percent to pace losses in financial shares. Hewlett-Packard Co. (HPQ) and Caterpillar Inc. (CAT) dropped at least 2.9 percent. The Dow Jones Transportation Average slid 2.3 percent. Gilead Sciences Inc. (GILD) plunged 9.1 percent after agreeing to buy Pharmasset Inc. (VRUS) for about $11 billion in cash. Pharmasset soared 85 percent.

The S&P 500 lost 1.9 percent to 1,192.98 at 4 p.m. New York time. The benchmark gauge has lost 5.2 percent in four days. The Dow Jones Industrial Average declined 248.85 points, or 2.1 percent, to 11,547.31 today as the supercommittee created to cut the deficit is poised to fail to reach a deal.

“The supercommittee was expected to pave the way to extend the stimulus that is in the system,” Barry Knapp, the New York- based head of U.S. equity strategy at Barclays Plc, said in a telephone interview. If stimulus is not extended, “you get a big hit to the economy in the first quarter right at the point when the economic fallout from the European debt crisis is hitting,” he said.

Today is the deadline for the Congressional Budget Office to receive information for scoring a proposal in advance of the supercommittee’s Nov. 23 target date for reaching a deal. The 12-member bipartisan supercommittee likely will say it can’t reach deal on deficit savings, according to a Democratic aide.
Price Range

The decline pushed the S&P 500 below levels representing the top of a price range that prevailed in the two months after the U.S. was stripped of its AAA credit rating by S&P on Aug. 5. Rallies after the downgrade brought the S&P 500 to closing highs of 1,204.49 on Aug. 15, 1,218.89 on Aug. 31 and 1,216.01 on Sept. 16, according to data compiled by Bloomberg.

The S&P 500 may fall to 1,100 if the supercommittee fails to reach an agreement, according to Goldman Sachs Group Inc.’s David Kostin. The strategist said in a note dated Nov. 18 that lawmakers’ failure to agree on at least the minimum required savings would demonstrate “the inability of elected officials to act in the long-term best interests of all Americans.”

U.S. shares joined European equities in retreating. The Stoxx Europe 600 Index declined 3.2 percent, the most since Nov. 1. France’s rising financing costs are increasing the nation’s fiscal challenges, according to report issued by Moody’s Investors Service. Germany’s Finance Ministry said the country’s expansion is “noticeably slower” this quarter.
‘Global Selloff’

“The global selloff in risk assets reflects concerns about the inability of policy makers to catch up with unsettling economic and financial realities, particularly in Europe and America,” Mohamed A. El-Erian, the chief executive officer at Pacific Investment Management Co. in Newport Beach, California, said in an e-mail. His firm runs the biggest bond fund.

Stocks slumped last week as higher government bond yields in Spain, France and Italy spurred concern the European debt crisis is intensifying outside Greece. Financial stocks in the S&P 500 lost 5.6 percent last week, the biggest drop among 10 industries, after Fitch Ratings said further contagion from Europe’s debt turmoil would be a risk for U.S. banks.
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