By Jonathan Cheng
U.S. stocks pulled back after two days of strong gains as
investors reassessed the latest smoke signals from the fiscal
negotiations in Washington.
The Dow Jones Industrial Average gave up 98.99 points, or 0.74%,
to 13251.97, with bulk of those declines coming in the final 25
minutes of trading to finish at the day's low.
The Standard & Poor's 500-stock index fell 10.98 points, or
0.76%, to 1435.81, on a day when all 10 of the index's sectors
finished in negative territory. The Nasdaq Composite fared better,
giving up 10.17 points, or 0.33%, to 3044.36.
The retreat comes one day after the Dow posted its first
back-to-back triple-digit gains since July. Those gains were
largely fueled by investor optimism that lawmakers in Washington
were reaching a consensus on budget negotiations, ahead of a
year-end deadline that would trigger a series of tax hikes and
spending cuts.
On Wednesday, however, Rep. John Boehner (R., Ohio) said in a
terse televised statement that the House would approve legislation
on Thursday to keep income tax rates the same for all Americans
earning less than $1 million a year, and would maintain the current
estate tax rate at 35% charged only to estates worth $5 million or
more. Mr. Boehner suggested the proposal, known as "Plan B," would
be the last option for avoiding the so-called fiscal cliff at the
end of the year.
Earlier, President Barack Obama had suggested he would veto such
a deal. House Minority Leader Nancy Pelosi (D., California)
underscored the tension later in the afternoon, talking tough on
the Republicans' latest remarks.
"I'm not sure a deal was ever in the bag. There were some in the
market who had thought that, given the averse effects of not making
a deal, there'd be a 'kumbaya moment' in Washington," says Jason
Ware, market strategist at Albion Financial Group in Salt Lake
City, Utah.
"We still think a deal is going to happen, but the timing of any
deal is much more dubious at the moment," he added. "Both sides
have really said that they don't think the other side is serious,
and the clock is ticking."
Weighing most heavily on the downside Wednesday were
telecommunications, health-care, consumer staple and utilities
stocks--the four defensive sectors.
Alcoa was one of the biggest Dow laggards, falling 3% after
Moody's Investors Service placed the aluminum company's debt rating
on review for a downgrade, putting it in danger of falling into
"junk" territory. Moody's cited concerns falling aluminum
prices.
General Electric, Home Depot and American Express also fell,
dropping 3.1%, 2% and 1.8% respectively.
Offsetting some of those declines were technology stocks,
following strong earnings from Oracle.
European markets were broadly higher. The Stoxx Europe 600 rose
0.4% to its highest level since May 2011 amid strong German data
and an upgrade of Greek debt by Standard & Poor's that pushed
up Greek stocks.
Germany's Ifo institute's business confidence index rose to
102.4 in December from 101.4 in November, above expectations of
102.0. The sub-index for current conditions slipped slightly, but
the one for business expectations increased. Germany's DAX stock
index inched up 0.2% to its highest level since January 2008.
Asian markets were mostly higher. Japan's Nikkei Stock Average
surged 2.4% to its highest close since March. The index's biggest
one-day leap since September 2011 was powered by strength in
banking and exporter stocks. Australia's S&P ASX 200 gained
0.5% to a fresh 17-month high.
In U.S. economic headlines, new residential construction fell
3.0% in November from the previous month, following two months of
strong gains, to a seasonally-adjusted annual rate of 861,000, just
below expectations. The previous month's reading was also revised
downward. New building permits, an indication of future
construction, rose by 3.6% to an annualized level of 899,000 in
November, above economists' estimates.
Crude-oil futures rallied 1.8% to above $89.51 a barrel, while
gold futures slipped 0.2% to about $1,666.50 an ounce. The dollar
slipped against the euro and edged up against the yen. Treasurys
gained, sending the yield on the benchmark 10-year Treasury note
down to 1.8000%.
In other corporate news, General Motors surged 6.6% to $27.18
after the U.S. Treasury Department said Wednesday it would sell its
holdings in the Detroit auto maker in the next 12 months to 15
months. GM will buy 200 million shares of its own common stock from
the Treasury at $27.50 per share by year end, a 7.9% premium to the
stock's Tuesday closing price. The remaining 300.1 million shares
will be sold through "various means in an orderly fashion."
Herbalife tumbled 12% after investor William Ackman of Pershing
Square Capital Management LP said he has been short-selling
Herbalife, calling the company a "pyramid scheme."
Oracle shares advanced 3.7% after the technology company
reported quarterly earnings and revenue that were above analyst
estimates, citing a strong performance by its software and
engineered systems businesses.
Digital storage rivals Western Digital and Seagate Technology
were among the strongest S&P 500 components, benefiting from a
ratings upgrade by Craig-Hallum Capital Group. Western Digital
gained 4% to lead the 500 stocks, while Seagate added 3.3%.
FedEx gained 0.9% after the package-delivery giant reported
fiscal second-quarter earnings that would have beaten estimates, if
not for the effect of superstorm Sandy, and revenue that rose above
forecasts. The company also affirmed its fiscal 2013 earnings
outlook.
Knight Capital Group jumped 5.7% after the company agreed to
merge with Chicago trading firm Getco.
Smith & Wesson Holding bounced 7.2% after President Obama
announced that Vice President Joe Biden would spearhead efforts to
mold new gun and mental-health policies following last week's
school shooting in Connecticut. The stock had tumbled 18% since
Thursday's close, just before the shooting.
Navistar International skidded 8.5% after the commercial-truck
maker reported a wider-than-expected quarterly loss amid a
double-digit percentage drop in sales.
Johnson Controls rose 1.9% after the maker of automotive
batteries provided a fiscal 2013 earnings and revenue outlook that
were above current analyst projections.
U.S.-listed shares of UBS AG slipped 1.2% after the Swiss
banking giant agreed to pay about $1.5 billion to settle
accusations that it tried to manipulate benchmark interest
rates.
Oncothyreon plummeted 51% after the company said a Phase 3 trial
of its lung cancer treatment didn't meet its primary endpoint of
improvement of overall survival.
Write to Jonathan Cheng at jonathan.cheng@wsj.com