Supercommittee Failure Beats The Stuffing Out Of Stocks

U.S. stocks got a less than cheerful start to a holiday-shortened week Monday, as worries over European debt were joined by rising concerns that a similar scenario may be playing out on this side of the Atlantic.

Official word out of Washington was still forthcoming, but it became clear over the weekend that the congressional Supercommittee�s effort at a bipartisan deficit reduction plan has come up empty-handed. While expectations were fairly muted that the committee would generate the kind of sweeping tax and spending reform needed, there had been optimism in some quarters that a last-minute deal would be hashed out though many doubted that a significant agreement was possible ahead of next year�s presidential election.

The pessimists seem to have been proven right, and the lack of a compromise to cut at least $1.2 trillion from the federal deficit over a decade means cuts will likely be made through a process known as sequestration, which will enforce nearly across-the-board cuts starting in 2013.

The other shoe to drop may come from the ratings agencies. Standard & Poor�s knocked the U.S. rating down a peg from AAA after the debt ceiling debacle in August. In a note last week, HSBC economists noted that S&P maintained a negative outlook on America�s rating after its downgrade and suggested that more than the bare minimum was required to change the landscape. �Failing to even reach the minimum required, which is where the committee appears to be headed right now, could easily lead to another U.S. downgrade.�

Equities started Monday�s session with a steep decline as the lack of a U.S. deficit deal combined with the ongoing concerns in Europe. Spain�s newly-elected center-right prime minister Mariano Rajoy was being called on to detail plans to grapple with that country�s fiscal issues, while Moody�s warned that the growing spread between French and German bond yields amplifies the fiscal challenges faced by the former�s government, �amid a deteriorating growth outlook.�

Just over an hour into the session the major averages were at session lows with the Dow Jones industrial average down 264 points to 11,532, the S&P 500 off 27  points to 1,189 and the Nasdaq 59 points lower at 2,513.

Monday morning was not completely without its winners though. Pharmasset, which focuses on Hepatitis-C treatments, surged 85.1% after agreeing to a takeover by Gilead Sciences, while Transatlantic Holdings climbed 1.4% on its own deal with Alleghany that seems to bring the extended courtship of the reinsurer to a close.