Dow Falls for Fourth Week Amid Federal Budget Debate

U.S. stocks sank for the week, sending the Dow Jones Industrial Average to its longest losing streak since August 2011, as investors fixated on federal budget negotiations between President Barack Obama and Congress.

Equities rallied on the last trading day after House Speaker John Boehner said budget talks with Obama were constructive. Microsoft Corp. (MSFT) tumbled 8 percent after the largest software maker said the president of its Windows operating system division was departing. Wal-Mart Stores Inc. (WMT) slid 5.9 percent after forecasting earnings that missed estimates. J.C. Penney Co. plunged 21 percent after reporting a third-quarter loss that was larger than projected.

The Dow lost 227.08 points, or 1.8 percent, to 12,588.31, as the gauge fell for the fourth straight week. The Standard & Poor’s 500 Index slid 1.4 percent, dropping for the second week, to 1,359.88.

“All eyes are on Washington,” Christopher Orndorff, who helps oversee $450 billion as senior portfolio manager at Western Asset Management Co. in Pasadena, California, said in a telephone interview. “Investors are concerned about the fiscal cliff and the potential outcome of the negotiations,” he said. “There’s real concern the outcome could mean a significant decline in economic growth projections.”

The S&P 500 has slumped 4.8 percent since Obama’s re- election set up a budget showdown with the Republican-controlled House of Representatives. Investors are speculating the so- called fiscal cliff debate may derail the economic recovery, with $607 billion in automatic tax increases and spending cuts set to kick in automatically next year. The Congressional Budget Office has said the U.S. economy would slow by as much as 0.5 percent in 2013 if Congress fails to act.

Cliff Talks

U.S. stocks rose on Nov. 16 after the first face-to-face talks with Obama and top Congress leaders since the Nov. 6 election. Boehner said he offered a “framework” including new revenue to reduce the U.S. budget deficit, while Treasury Secretary Timothy F. Geithner said he is optimistic a deal on averting the fiscal cliff could be reached within weeks.

“The fiscal cliff has several macro components,” Peter Kenny, managing director in institutional sales at Knight Capital Group Inc. in Jersey City, New Jersey, said in an e- mail. “Holders of shares are selling ahead of year-end to capitalize on rates that will rise next year,” he said. “It was a week dominated with rising tension in the Middle East, weak earnings and guidance.”

Stocks extended losses on Nov. 14 after Israel began a series of air strikes in the Gaza Strip. Israel extended its bombing and planned to increase its military call-up as Palestinian missiles landed in areas around Jerusalem and Tel Aviv on Nov. 16.

Earnings Season

Investors also watched reports by companies on third- quarter earnings this week. Of the 476 S&P 500 companies that have reported results, about 59 percent reported sales that missed analysts’ estimates.

All 10 groups in the S&P 500 fell during the week. Technology stocks erased 2.2 percent, with Microsoft losing 8 percent to $26.52 for the biggest decline in the Dow. (INDU) Steven Sinofsky, the Windows chief, was pushed out after clashes with executives, including Chief Executive Officer Steve Ballmer, people with knowledge of the move said.

Advanced Micro Devices Inc. (AMD) tumbled 8.4 percent to $1.86. 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 that AMD hired JPMorgan Chase & Co. to explore options, including a potential sale of the company or its patent portfolio.

PC Demand

Dell Inc. (DELL) fell 5.9 percent to $8.86. The No. 3 maker of personal computers forecast a fourth straight quarter of declining sales, a sign that a slump in demand for PCs will persist. Hewlett-Packard Co. (HPQ), the largest PC maker, slipped 5.6 percent to $12.85.

The S&P Supercomposite Homebuilding Index tumbled 5.4 percent. The measure is down for the fourth straight week as all 11 companies dropped at least 2.5 percent. D.R. Horton Inc. fell 8.3 percent to $18.90. Donald Tomnitz, the chief executive officer of the largest U.S. homebuilder by volume, cautioned that employment growth will remain weak next year, potentially hurting sales of new houses.

Applications for jobless benefits surged by 78,000 to 439,000 in the week ended Nov. 10, the most since April 2011, the Labor Department said. Several states said the increase was due to superstorm Sandy, a Labor Department spokesman said.

Retail Sales

A separate report showed retail sales in the U.S. fell in October for the first time in four months, influenced by the effects of 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.

Wal-Mart sank 5.9 percent to $68.03. The world’s largest retailer forecast fourth-quarter profit that trailed analysts’ estimates in anticipation of a competitive holiday season and after economic conditions slowed U.S. sales gains.

J.C. Penney plunged 21 percent to $16.28, the lowest level since March 2009. A plunge in third-quarter sales at the department-store chain fueled investor concern about the viability of Chief Executive Officer Ron Johnson’s turnaround plan. S&P cut the company’s credit rating two levels to B-, six steps below investment-grade.

Sears Holdings Corp. (SHLD) tumbled 24 percent, the most in almost a year, to $47.49. The retailer controlled by hedge-fund manager Edward Lampert posted a wider third-quarter loss and its 23rd straight quarterly sales decline.

Home Repairs

Home Depot Inc. (HD) climbed 1.9 percent to $62.12. The largest U.S. home-improvement retailer’s profit topped analysts’ estimates as customers spent more on house repairs.

Cisco Systems Inc. (CSCO) rallied 7 percent for the biggest gain in the Dow to $17.99. The largest maker of computer networking equipment reported a quarterly profit that topped analysts’ estimates as price reductions helped spur sales and cost cuts kept margins intact.

Facebook Inc. (FB) surged 23 percent, its biggest weekly advance since its initial public offering in May, to $23.56. Investors bet on the potential for the operator of the world’s largest social-networking service to boost advertising revenue, even as the number of tradeable shares surged. Restrictions lifted during the week on 804 million shares held by former employees and those who sold at the IPO.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

9:26

Nov. 16 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner talks about today's meeting between President Barack Obama and congressional leaders on ways to reduce the federal deficit and debt, and prospects for an agreement to avert the so-called fiscal cliff. He speaks with Al Hunt on Bloomberg Television's "Political Capital." UBS Securities LLC's Jonathan Golub and Bloomberg's Trish Regan and Adam Johnson also speak. (Source: Bloomberg)