December 1, 2023

Mixed Day on Wall Street as Tech Giants Disappoint

Stronger-than-expected results from General Electric and the oil-field services company Schlumberger helped the S. P. 500 offset losses in the technology sector and post a fourth week of gains.

For the week, the Dow rose 0.5 percent, the S. P. added 0.7 percent, and the Nasdaq fell 0.3 percent. The S. P. is up 18.6 percent for the year.

On Friday, Microsoft was the biggest drag on all three major indexes, its stock slumping 11.4 percent to $31.40, with the Nasdaq registering the day’s steepest declines. Google, which lost 1.5 percent to $896.60, also weighed on the S. P. 500 and Nasdaq. Both companies reported earnings that fell short of expectations.

Technology “may be the one area where companies haven’t gotten expectations sufficiently reduced,” said Eric Kuby, chief investment officer at North Star Investment Management in Chicago. “Stocks like Microsoft and Google I think were probably at the point where they had traded so nicely into earnings that people were really looking for something positive to be said.”

The Dow Jones industrial average slipped 4.80 points, or 0.03 percent, on Friday to close at 15,543.74. The S. P. 500 was up 2.72 points, or 0.16 percent, at 1,692.09. The Nasdaq fell 23.66 points, or 0.66 percent, at 3,587.61.

Analysts’ estimates for corporate earnings have been reduced so much that investors say they believe the targets for the most part should be beaten easily. Through Friday, of the 104 companies in the S. P. 500 that had reported quarterly earnings, 65.4 percent reported earnings above expectations, while 51 percent topped revenue estimates, according to Thomson Reuters.

Also in the tech sector, Advanced Micro Devices tumbled 13.2 percent to $4.03 after the company said gross margins would fall, even as it forecast stronger-than-expected revenue growth in the third quarter.

Encouraging earnings from other companies helped offset the tech losses. Shares of General Electric rose 4.6 percent to $24.72, while shares of Schlumberger gained 5.4 percent to $82.74.

The benchmark 10-year Treasury note rose 14/32 to 93 21/32, to yield 2.48 percent, down from 2.53 percent on Thursday.

This article has been revised to reflect the following correction:

Correction: July 19, 2013

Because of an editing error, a headline on an earlier version of this article misstated the outcome of Friday’s Wall Street trading. The Standard Poor’s 500-stock index, a broad measure of the market, ended with a slight gain; it is not the case that markets closed lower.

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Shares Rise Broadly After Upbeat Reports On Retailing and Jobs

Good news about hiring and spending at retail businesses helped send the stock market sharply higher on Thursday.

A pair of government reports offered investors more encouragement that the economic recovery would continue, even as Europe and Japan struggle. The Standard Poor’s 500-stock index rose 23.84 points, or 1.5 percent, to 1,636.36.

The Dow Jones industrial average rose 180.85 points, or 1.2 percent, to 15,176.08. The Nasdaq composite rose 44.94 points, or 1.3 percent, to 3,445.37.

The gains were broad. All 10 industry groups within the S. P. 500 rose, led by retailers and other consumer-discretionary companies. Gannett, the media company, rose 34 percent, the most in the S. P. 500, after it said it would buy another media company, Belo, based in Dallas.

“The underlying fundamentals of our economy are clearly doing much better,” said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Mass.

Markets have been turbulent over the last three weeks. The S. P. 500 rose 17 percent from the start of the year to May 21 when it hit a high of 1,669. The index began sliding the next day after the Federal Reserve said it would consider pulling back its support for the economy this year.

Since then, the index has fallen as low as 1,608, a trading range of 3.7 percent.

Investors have been debating when the Fed will begin slowing its bond purchases, and they have been worrying about the results. They could get a better sense on Wednesday, when the bank releases its policy statement and when the Fed’s chairman, Ben S. Bernanke, holds another news conference.

“A lot of investors are worried about the Fed,” said Robert F. Baur, chief global economist at Principal Global Investors in Des Moines. “That’s going to create a bumpy market, at least until they get some clarity on that. But we really think the U.S. is in pretty good shape.”

Mr. Baur said he thought the economic recovery would pick up speed later this year, which could help push corporate earnings and the stock market higher.

The latest positive news came early Thursday when the government said the number of Americans seeking unemployment benefits fell 12,000, to 334,000, below what economists had expected. Jim O’Sullivan, chief United States economist at High Frequency Economics, wrote in a note to clients that the government’s weekly numbers, while volatile, “continue to signal an improving labor market.”

The government also reported that retail sales increased 0.6 percent in May from April. That was up from a 0.1 percent gain in April and the fastest pace since February.

Some investors, like Anton Bayer, the chief executive of Up Capital Management in Granite Bay, Calif., say financial markets will falter when the Fed and other central banks begin to pump less money into the system. The Fed has artificially propped up the economy, he said, which is why investors are nervous about what will happen when the central bank starts buying fewer bonds every month.

“What the markets are seeing is the economic engines are not being primed,” Mr. Bayer said. “The fear is of the stimulus going away and exposing an economy that is not really chugging along. It’s the big risk.”

The 10-year Treasury note rose 22/32 to 96 15/32, with the yield dropping to 2.15 percent from 2.23 percent late Wednesday.

In Japan, the benchmark Nikkei 225 index slumped 6.4 percent as doubts grew that Prime Minister Shinzo Abe’s economic turnaround plan would succeed. The Japanese market is down 20 percent from a high reached on May 22, the definition of a bear market.

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Market Climbs Higher as Jobless Claims Slip

The stock market rose for a fourth straight day on Thursday, sending the Dow Jones industrial average and the Standard Poor’s 500-stock index to new milestones as positive data on the labor market and an encouraging retail outlook eased recent concerns about economic growth.

Despite the S. P. 500’s gain of 11.7 percent this year, investors have been concerned about the pace of the economic recovery, especially after the weak March employment report last week.

New claims for unemployment benefits fell more than expected in the latest week, dropping to the lower end of the range for the year. In another sign that the economy might be in better shape than some recent data had indicated, retail executives and analysts forecast improved same-store sales in April after mixed results in March.

Several of the S. P. 500’s top percentage gainers were retailers, with Ross Stores gaining 5.9 percent to $63.80; L Brands, formerly known as Limited Brands, gaining 4.3 percent to $50.25, and J. C. Penney gaining 5.5 percent at $14.86.

“This data is especially welcome on the heels of last week’s jobs report, and it just adds to the tremendous demand that there continues to be for equities,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management. “The money that has been waiting for a pullback is running out of patience.”

Still, the Nasdaq composite index’s gains were limited as technology stocks sold off after an industry report that showed shipments of personal computers fell significantly in the first quarter.

Hewlett-Packard slid 6.5 percent to $20.88 as the S. P. 500’s top percentage loser, followed by Microsoft, down 4.5 percent at $28.93. Microsoft was also affected after Goldman Sachs downgraded the stock to sell from neutral, citing “worsening PC trends and a lack of traction in tablets and smartphones.”

H.P. and Microsoft are Dow components, but the index drew plenty of strength from other members. Three of the blue-chip average’s five biggest gainers — Pfizer, Boeing and Home Depot — all hit 52-week highs.

The Dow industrials gained 62.90 points, or 0.42 percent, to close at 14,865.14. The S. P. 500 rose 5.64 points, or 0.36 percent, to 1,593.37. The Nasdaq edged up 2.90 points, or 0.09 percent, to 3,300.16.

“It’s amazing to me that we’re already a few points away from our midyear target of 1,600, which had seemed somewhat aggressive,” Mr. Grohowski said, referring to the S. P. 500. “But there’s still skepticism about the market and tons of cash on the sidelines, which encourages me that the market can continue to pull higher.”

The Dow received its biggest boost from the drug maker Pfizer, up 2.4 percent at $30.64 after JPMorgan Chase raised its target price on the company’s stock to $33 from $32.

Acadia Pharmaceuticals surged 64.4 percent to $13.10 after the drug maker said data from an initial late-stage trial would be sufficient to file for approval for its experimental antipsychotic drug for Parkinson’s disease patients.

In the bond market, interest rates eased. The price of the Treasury’s 10-year note rose 4/32, to 101 28/32, while its yield slipped to 1.79 percent, from 1.81 percent late Wednesday.

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Mutual Funds Found Big 2012 Gains, Despite Political Worry

The Standard Poor’s 500-stock index rose 13.4 percent for the year, even with a 1 percent decline in the fourth quarter. In those last months, doubts rose about whether Congress and President Obama could reach an agreement on taxes and spending in time to avoid the so-called fiscal cliff — and the recession that was thought to lie below.

The drama in Washington was one of several throughout the year that kept investors focused more on capitols than corporate boardrooms. European leaders were continually devising plans to rescue the euro and some of the economies that use it, and China underwent a change of leadership.

Although the fourth-quarter loss was worse soon after Election Day and stocks raced ahead at the start of the new year, investors’ concerns may yet prove well founded. The immediate concerns related to taxes were resolved only at the 11th hour — just past midnight, really — and much remains to be sorted out on spending. Investment advisers said that politics, at home and abroad, would continue to guide markets.

“The political environment and uncertainty revolving around policy decisions has been a really big factor,” said Jeremy DeGroot, chief investment officer of the fund provider Litman Gregory. “There are significant deficit issues that developed economies are facing, and the markets are hanging on every development.”

One bit of uncertainty was eliminated on Jan. 1, when Congress agreed to limit the scope of scheduled tax increases, although the deal still resulted in higher tax rates on payrolls, dividends and capital gains.

Worries also abated when European Union finance ministers agreed in the fourth quarter to place big banks under the supervision of the European Central Bank. That followed the bank’s announcement that it would support the bond markets of weaker economies, which are concentrated along the region’s southern periphery.

THE moves on both sides of the Atlantic helped stock funds achieve modest fourth-quarter gains. The average domestic fund in Morningstar’s database rose 0.9 percent. International funds fared better, up 4.8 percent, on average, with portfolios that focus on European stocks returning 7.4 percent and emerging-market funds rising 6.2 percent. Full-year returns exceeded 14 percent for all four categories.

Yields on short- and long-term debt remained low all year as the Federal Reserve and other central banks maintained the easy monetary policies in force since the 2008 crisis. While that could account for much of stocks’ strength during 2012, the influence on bond returns, at least on high-quality government issues, may be waning.

The average bond fund rose a healthy 8.4 percent on the year, but the fourth-quarter gain was a slim 1.3 percent, dragged lower by a 1.1 percent loss for portfolios of long-term government bonds. High-yield bond funds rose 3.1 percent for the quarter, on average, and funds that specialize in debt issued in emerging economies gained 3.9 percent.

Just how helpful low interest rates were for economic growth is hard to discern. American economic output has continued to expand at a sluggish pace. And Europe is widely seen to be in recession.

“The trend of deterioration in Europe is not slowing down,” said Virginie Maisonneuve, head of global and international equities at Schroder Investment Management. She noted, though, that some indicators suggested that conditions were stabilizing at very low levels along the continent’s troubled southern fringe.

Whatever the economic impact of low interest rates, they seem to be helping corporate America. Corporate debt issuance last year exceeded $1 trillion for the first time.

Increased indebtedness provides leverage that lifts profit margins, said Jeremy Grantham, chief investment strategist of the fund management company GMO. Margins have reached record levels as a proportion of economic output and are “weirdly high,” in his opinion, “unless we’re in one of those wonderful secular shifts that people talk about but almost never see.” He doesn’t glimpse any such new normal, however, and cites high margins as a reason to be cautious about most stocks.

Rising debt of another kind is a pressing concern for many investors. With the national debt above $16 trillion, the second part of the fiscal cliff debate, focusing on spending cuts, is expected to be played out over the next month or so in Washington.

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Fundamentally: Investing Abroad May Require a Detailed Map This Year

“Many felt the euro zone would blow apart and that China and the emerging world economies would hard-land,” said James W. Paulsen, chief investment strategist at Wells Capital Management.

Yet despite widespread worries over Europe’s debt crisis and China’s rapidly slowing economy, a broad swath of foreign stocks in the developed and emerging markets delivered double-digit gains for the year.

As 2013 begins, it looks once again like a tough slog for international investors — and this time, conditions may actually make it harder to generate strong portfolio returns. For starters, investors will have to be far more selective with their foreign stocks if they hope to enjoy the type of success they did last year, money managers say.

This is partly because much low-hanging fruit has already been picked. Value-minded funds that bet that blue-chip European stocks were being unfairly punished for the region’s debt troubles earned 6.8 percent in the recently ended quarter and 16.8 percent for all of 2012. And growth-oriented funds that focus on China had impressive gains of 11.6 percent in the fourth quarter and 20.4 percent for the year.

To be sure, “the long-term story of the emerging markets — with their faster-growing economies and younger populations — has legs,” said Jason Hsu, chief investment officer at the investment consulting firm Research Affiliates. “And in Europe, stocks are still trading at historic discounts.” For instance, based on 10 years of averaged earnings, the price-to-earnings ratio for European equities was less than 16 as the new year began, versus an average of slightly more than 20 over the last decade, he said.

But the risks are clearly on the rise, fund managers say.

For instance, while valuations abroad remain generally attractive, the same cannot be said about the pricing of high-quality companies in both the developed and emerging-market worlds that fund managers most covet.

Consider emerging-market companies that sell largely to consumers in their home regions, as opposed to customers in the much slower-growing developed world. While the P/E ratio for the Morgan Stanley Capital International Emerging Markets index was only 12 at the start of the year, based on projected earnings, it was more than 25 for consumer-related stocks in that index, according to Bloomberg.

“The disparity in valuations in the emerging markets between high-quality consumer companies and the rest is much wider than in the developed world,” said Simon Hallett, chief investment officer at the asset management firm Harding Loevner.

“Investing in the emerging markets is a question of price as well as relative growth,” Mr. Hallett added. “My point is that P/E expansion in the companies we want to buy in that region has at least largely taken place.”

This explains why the Harding Loevner International Equity fund, which outpaced 70 percent of its peers over the last year, has more than half of its portfolio in Europe and just 13 percent in the developing world.

Yet there are risks in betting on European equities, other managers say.

For instance, in recent years, a popular strategy among investors with European shares has been to concentrate on multinational companies that generate the bulk of their sales in the faster-growing emerging markets. These companies are generating stronger revenue and earnings growth than European concerns that do most of their business in their recession-racked home region.

While this strategy has worked, “valuations are looking stretched among these companies,” said Harry H. Hartford, president of Causeway Capital Management and co-manager of the Causeway International Value fund, which beat 98 percent of its peers in 2012 and 92 percent over the last five years.

A good example is Diageo, the spirits maker. After surging more than 36 percent last year, shares of the company — the seller of brands like Johnnie Walker, Smirnoff and Tanqueray — traded at a frothy P/E ratio of 38 as the year began, based on projected 2013 earnings. And after gaining 19 percent in 2012, shares of the household products maker Unilever traded at a forward P/E of nearly 17, versus 15 for Procter Gamble, its United States-based rival.

The choice for investors is difficult. They may need to pay uncomfortably high prices for quality stocks or assume a different type of risk by going down the quality curve to companies with poorer balance sheets and earnings prospects.

Mr. Hartford added that investors should be aware of yet another risk, even if it seems unlikely right now. In 2012, global stocks were supported by cheap capital made available by central banks worldwide. Thus far, there’s little indication that those central banks, including the Federal Reserve in the United States, will turn off the spigot of cheap liquidity. But it could happen.

“If there is a withdrawal of that liquidity, or if we get higher interest rates in the U.S. or Europe for that matter, you’d have to be much more selective with stocks,” Mr. Hartford said.

“I don’t anticipate that happening anytime soon,” he added. Still, he said, “it is undoubtedly the case that the further we get into 2013, in the absence of another round of unanticipated economic weakness, there is a greater likelihood of interest rates rising.”

Paul J. Lim is a senior editor at Money magazine. E-mail:

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Big Gains on Wall Street After the Fiscal Deal

Wall Street cheered an agreement that ended the fiscal impasse in Washington, sending the Standard Poor’s 500 to its biggest gains in more than a year on Wednesday.

After being restrained for much of the last three months by the political squabbling over an array of tax increases and spending cuts known as the fiscal cliff, investors demonstrated their new willingness to take risks in a broad array of financial markets around the world.

Shares in more speculative investments rose much faster than blue chips, sending the Russell 2000 index of smaller companies up 2.8 percent to 873.42, its highest level ever. The benchmark S. P. 500-stock index rose 2.5 percent, or 36.23 points, to 1,462.42. One more day of the same magnitude will bring the index to its highest level since the 2008 financial crisis.

“You’ve just removed a huge worry from the market,” said Jonathan Lewis, the chief investment officer at Samson Capital Advisors. “We’ve been in a never-never land where markets have not been able to take their attention off Washington.”

Congress signed off on the deal late Tuesday night, and it immediately sent stocks soaring first in Asia and then in Europe. Leading indexes rose 2.6 percent in France, 2.2 percent in Germany and 2.9 percent in Hong Kong. Markets in Japan and mainland China were closed for holidays.

The Dow Jones industrial average rose 2.4 percent, or 308.41 points, to 13,412.55. The Nasdaq composite index increased by 3.1 percent, or 92.75 points, to 3,112.26.

Only 31 stocks in the S. P. 500 dropped on Wednesday. Technology and financial stocks did particularly well, as did stocks that offer generous dividends. The agreement on Tuesday raised the tax rate on dividends to 20 percent from 15 percent, less than President Obama had proposed.

In the United States, share prices gained most in the first 30 minutes of the day and then plateaued before a brief spike just before trading closed.

Many market strategists were worried that Wednesday’s rally would not last long because of the questions that were not addressed by the fiscal accord. While the deal provides a long-term settlement on tax rates, it delayed for only two months $110 billion of spending cuts that were supposed to start on Jan. 1. Congress also put off a decision about limits on government borrowing, known as the debt ceiling.

The Treasury Department has said that the government hit the ceiling at the end of 2012 and it will be able to finance the budget only by using extraordinary measures until March. Republican leaders in the House of Representatives have said they will raise the borrowing limit only if Democrats agree to more spending cuts.

That debate may well be more fractious than what has taken place in recent weeks, analysts said.

Leon LeBrecque, the founder of the asset management firm LJPR, said that Wednesday’s rally would not last long as investors turned their attention to the unanswered questions.

“We’re in a three-act play, but we’re only through with Act 1,” said Mr. LeBrecque. “Everyone is happy about the first act. The real question is what happens next.”

The last time the government reached its borrowing limit, in 2011, Congress approved an increase at the last minute. This led Standard Poor’s ratings services to strip the United States of its triple-A credit rating. There is widespread concern that one of the other two major credit ratings agencies will lower their rating of American government debt in the coming months.

On Wednesday, Moody’s Investors Service said that the fiscal pact did not help the nation’s debt and deficit problems and “will likely be a constraint on growth in coming quarters.” It said the looming negotiations over spending cuts and lifting the debt ceiling add “uncertainty to the outcome of negotiations.”

“The debt trajectory resulting from this process is likely to determine whether the Aaa rating is returned to a stable outlook or downgraded” by one notch to Aa1, the Moody’s report said.

But there is hope in some quarters of Wall Street that with each new crisis, and each last-minute fix, the risks to the markets grow less severe as investors become convinced that politicians eventually find solutions to their disagreements. Michael Purves, the chief global strategist for Weeden Company, compared the debates in Washington to horror movies: “Once you see the first movie, the sequels are never as scary.”

He said that at least for the near term, the resolution in Washington should allow investors to focus on the growing signs of improvements in the American economy.

The Institute for Supply Management said on Wednesday that manufacturing in the United States expanded slightly in December. Its manufacturing activity index rose to 50.7 points in December, up from 49.5 in November. Even more important data will come on Friday, when the monthly jobs report is released.

In the bond market, investors sold off the longer-dated Treasuries that have been used as safe havens in recent years. The price of the Treasury’s 10-year note fell 22/32, to 98 4/32, while its yield rose to 1.84 percent, from 1.76 percent late Monday.

This article has been revised to reflect the following correction:

Correction: January 2, 2013

An earlier version of this article misstated the surname of the chief investment officer at Samson Capital Advisors. He is Jonathan Lewis, not Jonathan Samson.

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For Shares, a Flat End to a Rocky November

Stocks were flat on Friday as politicians remained at odds about how to settle the looming federal requirements for tax increases and spending cuts.

Trading has been choppy in the last two weeks as investors react to statements from policy makers on the state of discussions on how to avert a fiscal stalemate, which many economists say could pull the economy back into recession.

The Standard Poor’s 500-stock index was up 0.29 percent in November even as it suffered a slide of more than 6 percent from the month’s high to its low.

“Given the on-again-off-again ‘fiscal cliff,’ it’s rather surprising how resilient this market has been,” said David Rolfe, chief investment officer at Wedgewood Partners in St. Louis.

“Between now and the end of the year, there’s going to be an information vacuum outside the fiscal cliff, and I believe that resiliency will be tested.”

In contrast to the apparent calm in equities, the CBOE Volatility Index, a gauge of market anxiety, jumped 5.4 percent, its largest daily gain in two weeks.

The VIX also rose for the week, but posted a 14.7 percent decline for November.

On Friday, President Obama said a “handful of Republicans” in the House of Representatives were holding up legislation to extend tax cuts for middle-class Americans to try to preserve them for the wealthy.

Speaking shortly after the president, the House speaker, John Boehner, Republican of Ohio, said: “There is a stalemate; let’s not kid ourselves.”

Despite the divisive language, many market participants are betting that a deal will be struck — if only at the 11th hour.

Corporations continue to react to what is expected to be a higher tax burden next year. Whole Foods Market was the latest to announce a special cash dividend, of $2 a share, ahead of expected higher tax rates in 2013.

On Friday, the Dow Jones industrial average rose 3.76 points, or 0.03 percent, to 13,025.58. The S. P. 500 rose 0.23, or 0.02 percent, to 1,416.18. But the Nasdaq composite index dipped 1.79 points, or 0.06 percent, to 3,010.24.

For November, the S. P. 500 rose 0.29 percent, its smallest monthly change since March 2011. The Dow fell 0.5 percent and the Nasdaq gained 1.1 percent.

For the week, though, all three major stock indexes advanced, with the Dow up 0.1 percent, the S. P. 500 up 0.5 percent and the Nasdaq up 1.5 percent.

VeriSign shares dropped 13.2 percent to $34.15 after the company said the Commerce Department approved its agreement with ICANN to run the dot-com Internet registry, but VeriSign won’t be able to raise prices as it did before.

Stock in Yum Brands, the parent of the KFC, Taco Bell and Pizza Hut chains, slid 9.9 percent to $67.08 a day after the company forecast a decline in fourth-quarter sales at established restaurants in China.

After maintaining a close relationship for several years, Facebook and Zynga revised terms of a partnership agreement, according to regulatory filings. Now, Zynga, creator of the FarmVille online game, will have limited ability to promote its site on Facebook. Zynga’s stock fell 6.1 percent to $2.46. Facebook’s stock gained 2.5 percent to $28.

Apple’s latest iPhone received final clearance from Chinese regulators, paving the way for a December introduction in a highly competitive market. Its stock fell 0.7 percent to $585.28.

Interest rates were steady. The Treasury’s benchmark 10-year note rose 2/32, to 100 4/32, and its yield was unchanged at 1.61 percent.

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Former Stanford Executive Gets Prison Term

Laura Pendergest-Holt, 39, had pleaded guilty in June to one count of obstruction of justice, after originally facing 21 counts including fraud and conspiracy.

The sentence was part of a plea agreement, and was imposed by U.S. District Judge David Hittner in Houston.

Pendergest-Holt had been chief investment officer at Stanford Financial Group, where prosecutors said Allen Stanford ran a two-decade fraud centered on bogus certificates of deposits from his Antigua-based Stanford International Bank.

In her plea, Pendergest-Holt admitted to concealing details about the bank’s investments that she knew the SEC wanted.

Prosecutors said she did this to impede the regulator’s probe and keep Stanford’s bank in operation.

Hittner also sentenced Pendergest-Holt to three years of supervised release. The defendant was not fined, but was taken into immediate custody following Thursday’s hearing.

Before Stanford’s fraud was uncovered in 2009, Pendergest-Holt had had a love affair with James Davis, Stanford’s former chief financial officer and the government’s main witness in the case against the former billionaire.

“She feels terrible about ever getting involved with Robert Allen Stanford and Jim Davis and that people were ever defrauded by them,” Chris Flood, a lawyer for Pendergest-Holt, said in a phone interview. “She lost everything herself in the CD program, and was a victim.”

Stanford is serving a 110-year prison sentence following his conviction in March on 13 criminal counts.

Jury selection is scheduled to begin on September 28 for a criminal trial of two former Stanford accounting executives, Mark Kuhrt and Gilberto Lopez.

The case is U.S. v. Stanford et al, U.S. District Court, Southern District of Texas, No. 09-cr-00342.

(Reporting By Jonathan Stempel in New York; Editing by Cynthia Osterman)

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Stocks and Bonds: Shares Down Moderately on U.S. Debt Talks

The lack of a deal to raise the debt limit in the United States hung over the financial markets on Monday, unsettling investors because of the uncertainty but not provoking a major reaction in bond or stock prices.

House Republicans and Senate Democrats were readying competing plans in an effort to avoid a federal default next week. Republicans were trying to sell to their rank and file a two-step plan that would allow the federal debt limit to immediately rise by about $1 trillion and tie a second increase next year to more deficit reductions.

“We are being subjected to headline after headline, interview after interview, extolling the horrors of what happens if the debt ceiling isn’t raised,” said Hank Smith, Haverford’s chief investment officer of equity.

“Yet the market is ignoring this and for the most sensitive part of the market, the bond market, it is a big yawn,” he added.

At the close, the Dow Jones industrial average was down 88.36 points, or 0.70 percent, to 12,592.80. The broader Standard Poor’s 500-stock index was down 7.59 points, or 0.56 percent, to 1,337.43. The Nasdaq was down 16.03 points, or 0.56 percent, to 2,842.80.

The unease was also signified by investors turning to the perceived safety of gold and by a slight rise in Treasury yields.

Stocks had declined sharply at the opening before retracing some ground.

“Obviously the market was selling off, but during the course of the day I think that market participants were getting a growing sense that something will be carved out, that there will be something that that will placate markets before the deadlines,” said Quincy Krosby, a market strategist for Prudential Financial.

The price of the benchmark 10-year Treasury note fell 11/32 to 101 1/32, pushing the yield up to 3 percent, from 2.96 percent late Friday. Guy LeBas, the chief fixed-income strategist for Janney Montgomery Scott, said the Aug. 2 deadline was forming a “gigantic overhang” in investors’ minds. He said that while the risk grows day by day, “a default is not the most likely outcome right now.”

Investors were becoming leery of Washington’s ability to come to an agreement on a debt deal, said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company, in a research note.

“The world owns our debt and wants to continue to hold it as long as we can find a way to keep issuing what was once considered, and likely still is, the safest debt on the planet,” Mr. Giddis wrote in a research note.

Investors have driven gold above $1,600 an ounce in recent days amid the uncertainty.

“With little optimism on U.S. debt talks at the moment, the gold price acutely reflects investor nervousness that limited progress will be made before the Aug. 2 deadline,” Edel Tully, a strategist at UBS, wrote in a research note. “This nervousness is in many ways justified as the threat of a U.S. ratings downgrade is very real.”

The markets have also been buffeted by the uncertainty around Greece, where European leaders last week were able to agree on a bailout package. Still, on Monday, Moody’s downgraded Greece’s local and foreign currency bond ratings, saying that there were still implications for private creditors of “substantial economic losses” on their holdings of government debt.

In Europe, the FTSE 100 index of leading British shares closed down 0.16 percent at 5,925.26, while Germany’s DAX was up 0.25 percent to 7,344.54. The CAC 40 in France ended 0.77 percent lower at 3,812.97.

The euro was trading slightly lower against the dollar, at $1.4374.

The spread on Italian and Spanish bonds against German bonds widened on Monday.

Earlier in Asia, Japan’s Nikkei 225 closed down 0.8 percent at 10,050.01, while Hong Kong’s Hang Seng Index lost 0.7 percent to 22,293.29.

China’s Shanghai Composite Index slid nearly 3 percent to 2,688.75. The Associated Press reported it was the biggest one-day loss in six months.

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Hewlett-Packard’s Results Help Drag Down the Dow

H.P. fell more than 7 percent. The company lowered its earnings outlook for the rest of the year, partly because of weaker sales of personal computers. The company’s shares fell to $36.91, near the lowest price in 12 months.

Concerns about the economy’s strength helped pull down industrial companies like Caterpillar and Boeing. The Federal Reserve said the nation’s factories produced fewer goods in April for the first time in 10 months. If the decline continues, it could cut into the earnings of companies that make industrial equipment. The Commerce Department also reported that construction of new homes plunged in April.

The two reports drove traders into the relative safety of government bonds, pushing yields to their lowest level this year.

“There’s a high degree of caution right now,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “People are worried about big picture issues that need to be resolved.”

The Dow Jones industrial average fell 68.79 points, or 0.55 percent, to 12,479.58. The Standard Poor’s 500-stock index lost 0.49, or .04 percent, to 1,328.98. The Nasdaq rose .90, or 0.03 percent, to 2,783.21.

Even with a majority of companies reporting stronger earnings, the stock market has lost some of its momentum in the last few weeks. Concerns are growing that high gas prices will weigh on the economy, pinch consumer spending and cut into corporate profits.

Companies reported mixed results Tuesday. Wal-Mart Stores said its income rose 3 percent in the first quarter, but sales fell at stores open at least a year for the eighth quarter in a row. Wal-Mart’s stock fell nearly 1 percent.

Sales also slipped in the first quarter at Home Depot, but the retailer’s income jumped 12 percent and beat analysts’ expectations. The stock rose 1.2 percent.

The Treasury’s 10-year note rose 8/32, to 100 2/32. The yield fell to 3.12 percent, from 3.15 percent late Monday.

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