1. Stocks Turn Up On Hints Of ‘fiscal Cliff’ Deal
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NEW YORK (AP) – On Monday, the stock market was as choppy as the “fiscal cliff”
deal-making that has been yanking it around.
U.S. stocks struggled for direction on the last day of the year, with the “fiscal cliff” just hours
away and Republicans and Democrats yet to hammer out a budget deal.
The Dow Jones industrial average opened lower, with investors disappointed that politicians
hadn’t reached an agreement over a weekend of terse, stop-and-go negotiating. With no clarity
on whether a deal would get done, and what it would look like if it did, the Dow spent the
morning flitting between small gains and losses.
The Dow and the other major stock indexes turned higher at midday after a few signs that a
deal was emerging. The Associated Press and other media outlets reported that both sides had
agreed on a few key points on taxes and unemployment benefits. President Barack Obama was
scheduled to speak on the issue at 1:30 p.m. EST.
Around 1 p.m. EST, the Dow was up 42 points to 12,979. The Standard & Poor’s 500 was up
eight to 1,411. The Nasdaq composite index was up 29 to 2,989.
If politicians can’t agree on a deal by midnight, then higher taxes and lower government
spending will automatically kick in Tuesday – the so-called fiscal cliff. That would hurt the
economy, many investors believe. But what might hurt more, they add, is the psychological
impact of knowing that the government that can’t agree on a budget.
“We’re having a fragile recovery, with the pain of 2008 still fresh on everybody’s mind,” said
Joe Heider, principal at Rehmann Group outside Cleveland. “It’s fear of the unknown. And fear
is one of the greatest drivers of the financial markets.”
It’s difficult to discern how a deal, or lack of a deal, might affect the stock market. From
mid-November through roughly mid-December, the stock market rose more or less steadily,
despite the “fiscal cliff” looming on the horizon. It wasn’t until shortly before Christmas that the
“cliff” finally scared investors enough to send the market down.
Some investors are unruffled by the approaching “cliff.” Even if Republicans and Democrats
can’t reach a deal, some investors think the effect of the higher taxes and lower government
spending would be more like the anti-climactic Y2K scare than a true Armageddon. The impact
would be felt only gradually – for example, workers might get more taxes withheld from their first
couple of paychecks in the new year – but then Congress could always retroactively repeal
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2. those higher taxes, these investors reason.
Others are more concerned. The higher taxes and lower government spending could take more
than $600 billion out of the U.S. economy and send it back into recession. Politically, the U.S.
would send a message that its lawmakers can’t cooperate. And without a deal, investors would
have no good read on the country’s long-term policy for taxes and spending, or how the
government plans to eventually trim its deficit.
Tim Speiss, partner in charge of the personal wealth advisers practice at EisnerAmper in New
York, followed the “cliff” negotiations on Monday and wondered if the U.S. would get its debt
rating cut again. The Standard & Poor’s ratings agency cut its rating of the U.S. amid similar
negotiations, when lawmakers were arguing over the government’s borrowing limit in August
2011. S&P said at the time that “America’s governance and policymaking (is) becoming less
stable, less effective, and less predictable.” Its rating cut sent the stock market into a tailspin.
The other major ratings agencies, Moody’s and Fitch, have suggested that they might lower
their ratings of the U.S. if the country goes over the “fiscal cliff.”
“That is, unfortunately, the big story,” Speiss said.
It’s also one of the only stories. There’s been little other news to trade on during the holiday
season, giving the “fiscal cliff” drama outsized influence. No major companies are scheduled to
report earnings this week, and the major economic indicator this week, the government’s
monthly jobs report, won’t be released until Friday.
Trading volume has also been light, with many investors still on vacation. That also makes the
market more susceptible to getting yanked around: With fewer shares trading hands, the market
can be moved by relatively small trades.
Last week, about 2.2 billion shares traded hands each day on average. Throughout the year,
the average has been closer to 3.6 billion.
The yield on the benchmark 10-year Treasury note rose to 1.74 percent from 1.70 percent late
Friday.
Some of the best-performing stocks for the year were those that had been hammered in 2011.
Homebuilder PulteGroup, appliance maker Whirlpool and Bank of America all more than
doubled over the year, after falling by double-digit percentages in 2011.
Some of the worst performers of the year were Best Buy, Hewlett-Packard and J.C. Penney. All
are struggling to keep up with competitors who have adapted more quickly to changing
technologies and changing customer tastes. They were all up Monday, but were each down at
least 45 percent for the year.
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Stocks Turn Up On Hints Of ‘fiscal Cliff’ Deal
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