U.S. Stock Futures Drop as Prospects Fade for Budget Agreement

By Joanna Ossinger and Julie Cruz - Nov 21, 2011 7:33 PM GMT+0700

U.S. stock-index futures retreated, indicating the Standard & Poor’s 500 Index will extend its biggest weekly decline in two months, on signs lawmakers will fail to agree on cutting the budget deficit.

Transatlantic Holdings Inc. (TRH) may be active after Alleghany Corp. agreed to buy the reinsurer for $3.4 billion in cash and stock. Chevron Corp. (CVX) and Schlumberger Ltd. dropped in early New York trading as crude oil fell for a third day to its lowest price in more than a week. Alcoa Inc. (AA) slid 2 percent, pacing declines in metal prices.

Futures on the S&P 500 expiring in December dropped 1.7 percent to 1,193.10 at 7:13 a.m. in New York. The equity benchmark lost 3.8 percent last week, the biggest retreat since Sept. 23, as Spanish, French and Italian bond yields rose and Fitch Ratings said the euro-area’s debt crisis poses a threat to American banks. Dow Jones Industrial Average futures lost 162 points, or 1.4 percent, to 11,605.

“The markets are extremely nervous everywhere,” said Jacques Porta, a fund manager at Ofi Patrimoine in Paris, who helps oversee about $400 million. “They are focusing on what the rating agencies will do if U.S. lawmakers can’t reach an agreement to cut the budget deficit. It’s a very difficult situation.”

The deficit-cutting congressional supercommittee will probably say that no agreement was reached on saving $1.2 trillion from the federal budget, a Democratic aide said on condition of anonymity because the official is not authorized to discuss internal matters publicly.

New Spanish Leader

In Spain, People’s Party leader Mariano Rajoy won the biggest parliamentary majority in a Spanish election in 29 years and called on Spaniards to work together to prevent the nation being overwhelmed by the debt crisis.

A report at 10 a.m. in Washington will probably show that sales of previously owned homes in the U.S. fell in October for a second month as declining property values failed to entice buyers, economists said.

Purchases decreased 2.2 percent last month to a 4.8 million annual rate, according to the median forecast of 65 economists surveyed by Bloomberg News.

The 5.4 percent decline in the S&P 500 since reaching a three-month high of 1,285.09 on Oct. 28 has pushed its price- earnings ratio to 12.8, or about 22 percent below its five- decade average, based on reported profits. S&P 500 income rose at a 16 percent rate in the third quarter, with about three companies beating analyst profit estimates for each that missed, according to data compiled by Bloomberg.

The index is trading 6.4 percent below the average year-end forecast of Wall Street equity strategists tracked by Bloomberg.

Hewlett-Packard Earnings

Hewlett-Packard Co. (HPQ) will report fourth-quarter adjusted profit of $1.13 a share after the market close today, compared with $1.27 in the same period last year, according to analyst estimates compiled by Bloomberg. HP fell 1.5 percent to $27.56 in early New York trading.

Tyson Foods Inc. (TSN) will report fourth-quarter profit of 32 cents a share excluding some items in its announcement today, according to analyst forecasts.

Transatlantic may move as Alleghany agreed to buy the reinsurer. Transatlantic shareholders will receive 0.145 share of Alleghany and $14.22, valued at about $59.79 per share, the companies said today.

Chevron, Alcoa

Chevron, the second-largest U.S. energy company, declined 1.2 percent to $96.74 in early New York trading. Schlumberger, the world’s largest provider of oilfield services, slid 2.9 percent to $69.25. Crude oil dropped as much as 2.1 percent to their lowest price since Nov. 10. Japan, the world’s third- biggest crude consumer, reported the first drop in exports in three months.

Alcoa, the largest U.S. aluminum producer, lost 2 percent to $9.50 in early New York trading. Freeport-McMoRan Copper & Gold Inc., the world’s biggest publicly traded copper producer, retreated 1.4 percent to $36.41. Copper, lead, tin and zinc fell on the London Metal Exchange today.

Walgreen Co., the largest U.S. drugstore chain, tumbled 2.3 percent to $31.88 in early trading after Morgan Stanley downgraded the shares to “underweight.”

To contact the reporters on this story: Joanna Ossinger in New York at jossinger@bloomberg.net; Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net