U.S. Stocks Erase Losses; IMF Revamps Program
By Rita Nazareth
November 22, 2011 1:02 PM EST
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U.S. stocks erased losses after the International Monetary Fund revamped its credit-line program to encourage countries facing short-term financing needs to turn to the fund.
Chevron Corp. and Kraft Foods Inc. added more than 1 percent, leading gains in the Dow Jones Industrial Average. Alcoa Inc. and Boeing Co. (BA) dropped at least 1.4 percent, pacing losses among companies most-dependent on economic growth. Hewlett-Packard Co. (HPQ) retreated 2.4 percent after forecasting profit that missed analysts’ estimates.
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The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,193.48 at 1:01 p.m. New York time after losing 1 percent. The Dow lost 4.96 points, or less than 0.1 percent, to 11,542.35.
“The IMF step looks like it is designed to ameliorate the European issue somewhat,” Peter Tuz, who helps manage about $800 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said in a telephone interview. “We’ve been oscillating between the woes in Europe and weaker- than-expected economic data. Between now and year-end, there will be a guessing game as to the direction of our economy and the direction of the economies in Europe.”
Equities fell earlier after the Commerce Department said U.S. gross domestic product expanded at a 2 percent rate in the third quarter, slower than previously reported. The S&P 500 rebounded (SPX) after the IMF announced changes to the credit line, enabling countries the pre-qualify to request IMF funds without having to make as many policy changes.
No ‘New Bazooka’
Concern that leaders are running out of options to solve the debt crisis sent French and Italian yields higher. Michael Meister, finance spokesman for German Chancellor Angela Merkel’s Christian Democratic party, said “we haven’t any new bazooka to pull out of the bag.”
Yesterday’s 1.9 percent drop in the S&P 500 pushed the index 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.
Supercommittee Failure
The congressional supercommittee’s failure to reach a deal means several tax programs, including a payroll tax holiday, risk expiring at the beginning of next year, weighing on the household spending that accounts for about 70 percent of the world’s largest economy.
S&P reaffirmed it would keep the U.S. credit rating at AA+ after stripping the government of its top AAA grade on Aug. 5. Moody’s Investors Service reaffirmed its AAA rating with a negative outlook. Fitch Ratings noted in a statement that it said in August that a supercommittee failure would probably result in a “negative rating action,” likely a revision of its outlook to negative, and that a review would be concluded by the end of this month.
“This is a headline-driven market,” Peter Kenny, a managing director in institutional sales at Knight Capital Group Inc. in Jersey City, New Jersey. “Everything that’s not entirely negative in this type of environment becomes a positive.”
The Morgan Stanley Cyclical Index dropped 0.4 percent, paring a slide of as much as 1.7 percent. Alcoa lost 1.4 percent to $9.34. Boeing declined 1.5 percent to $64.56.
Hewlett-Packard Slumps
Hewlett-Packard fell 2.4 percent to $26.21. The profit outlook for this quarter and fiscal 2012 show that Chief Executive Officer Meg Whitman has a more realistic sense of the company’s challenges, said Chris Whitmore, an analyst at Deutsche Bank AG. Leo Apotheker was replaced on Sept. 22 after slashing forecasts three times in less than a year and jarring investors with a decision to explore spinning off the PC unit.
Netflix (NFLX) Inc. sank 2.2 percent to $72.80 as the video- streaming and DVD subscription service agreed to sell $400 million in stock and convertible notes. Technology Crossover Ventures will purchase $200 million in zero-coupon senior convertible notes due 2018, and T. Rowe Price (TROW) Associates Inc. funds will buy $200 million in stock, Los Gatos, California- based Netflix said yesterday in a statement.
The recent retreat in U.S. stocks, led by banks and brokerages, is signaling more losses through the end of the year, a period in which the S&P 500 usually performs best, according to Bank of America Corp. (BAC)
Financial shares have posted the worst return (SPXL1) this month among the S&P 500’s 10 industries, dropping 9.9 percent through yesterday. The weakness in the group and the benchmark gauge’s decline below 1,200 suggested the index is at risk of sinking to this year’s intraday low of 1,074.77, said Mary Ann Bartels, Bank of America’s head of U.S. technical and market analysis.
“A seasonal year-end rally will likely turn into a Christmas Bah, Humbug,” Bartels wrote in a note to clients yesterday. She sees a 50 percent chance of “a European meltdown” that would send the S&P 500 to as low as 935.
To contact the reporter on this story: Rita Nazareth in New York at
rnazareth@bloomberg.net