Fearing ‘cliff,’ investors finish brutal week

On Thurs­day, Robert Nel­son II of Bar­clays, left, and Fady Tan­ios of Raven Secu­ri­ties work on the floor of the New York Stock Exchange, in New York. (AP Photo/Henny Ray Abrams)

STEVE ROTHWELL

AP Busi­ness Writer

NEW YORK — Wall Street is peer­ing over the “fis­cal cliff” and feel­ing vertigo.

The stock mar­ket fin­ished one of the worst weeks of the year Fri­day, push­ing Wash­ing­ton to work out a deal to avoid the tax increases and gov­ern­ment spend­ing cuts set to take effect Jan. 1.

Remarks by re-elected Pres­i­dent Barack Obama and House Speaker John Boehner on the loom­ing dead­line didn’t do much to cheer the mar­ket. Stocks fin­ished barely higher for the day.

Chris Ber­telsen, the chief invest­ment offi­cer at Global Finan­cial Pri­vate Cap­i­tal of Sara­sota, Fla., said he expects Con­gress and Obama to reach a com­pro­mise to avoid the fis­cal cliff.

“But it could well be the con­ven­tional U.S. polit­i­cal way of doing it — the last minute type of stuff — in which case the mar­kets will be haunted by it until the point it hap­pens,” he said.

For the week, the Dow Jones indus­trial aver­age fell 277 points, or 2.1 per­cent. The Dow has fallen 795 points since hit­ting its clos­ing high for the year, 13,610 on Oct. 5.

The S&P fell 2.3 per­cent dur­ing the week, its worst weekly decline since June 1, when investor con­cern about the debt cri­sis in Europe was rising.

Stocks began their slide Wednes­day in the biggest sell-off of the year after vot­ers returned Obama, a Demo­c­ra­tic Sen­ate and a Repub­li­can House to power. Investors imme­di­ately turned to wor­ry­ing about the cliff.

If the tax increases and spend­ing cuts take full effect, the U.S. will likely fall back into reces­sion, the Con­gres­sional Bud­get Office said Thursday.

Boehner said Fri­day that he remains unwill­ing to raise tax rates on upper-income earn­ers. But he left open the pos­si­bil­ity of bal­anc­ing spend­ing cuts with rev­enue increases that come from some revi­sions to the tax code.

Stocks man­aged a small rally. The Dow was up about 30 points when Boehner started talk­ing and about 80 points shortly after.

Then Obama said he would not accept any approach to fed­eral deficit reduc­tion that doesn’t ask the wealthy to pay more in taxes. A spokesman later said Obama would veto leg­is­la­tion extend­ing tax cuts for fam­i­lies mak­ing $250,000 or more.

The Dow began slid­ing just before Obama spoke, at 1 p.m., and had lost its gain for the day by 1:30.

As they head into talks with Obama next week on the fis­cal cliff, con­gres­sional lead­ers no doubt remem­ber what can hap­pen on Wall Street when investors are wor­ried and watch­ing Washington’s every move.

In Sep­tem­ber 2008, at the depths of the finan­cial cri­sis, the House defeated a $700 bil­lion emer­gency res­cue of the nation’s finan­cial sys­tem, send­ing the Dow plung­ing 777 points.

The Dow also slid for eight straight days in the sum­mer of 2011 as politi­cians squab­bled over a deal to raise the nation’s fed­eral bor­row­ing limit before even­tu­ally reach­ing an accord Aug. 1.

The index slipped as much as 634 points between July 27 as the polit­i­cal bick­er­ing inten­si­fied and Aug. 5, when S&P down­graded the national credit rat­ing, cit­ing the weak­en­ing of U.S. polit­i­cal insti­tu­tions as a rea­son for the cut.

On Fri­day, stocks pared losses as investors took encour­age­ment about the econ­omy from a report by the Uni­ver­sity of Michi­gan show­ing that con­sumer con­fi­dence rose more than expected in November.

The Dow fin­ished up 4.07 points at 12,815.39. The S&P advanced 2.34 points to 1,379.85, and the Nas­daq com­pos­ite gained 9.29 points to 9,204.87.

Stocks are well below the highs of this year. The S&P is down 5.5 per­cent from its peak of 1,465 in Sep­tem­ber, when the Fed­eral Reserve announced a third round of a bond-buying pro­gram intended to hold down bor­row­ing costs.

The dim­ming out­look for Europe also weighed on mar­kets this week. The Euro­pean Com­mis­sion, the exec­u­tive arm of the Euro­pean Union, cut its fore­cast for eco­nomic growth in the region Wednesday.

The yield on the 10-year Trea­sury note was lit­tle changed at 1.62 per­cent com­pared with 1.61 per­cent late Thurs­day. The yield on the bench­mark gov­ern­ment secu­rity has tum­bled from as much as 1.84 per­cent Sept. 17, as investor aver­sion to risk has grown. Trea­sury yields fall as investor demand pushes up prices.

Among other stocks mak­ing big moves:

— Walt Dis­ney fell $2.98, or 6 per­cent, to $47.06 after it said that adver­tis­ing sales were flat at its ESPN unit, rais­ing con­cern about the out­look for growth.

— Online deals com­pany Groupon slumped $1.16, almost 30 per­cent, to $2.76 after it dis­closed late Thurs­day that it was hurt by the eco­nomic prob­lems in Europe and growth failed to meet expectations.

— J.C. Pen­ney dropped $1.05 cents, or 4.8 per­cent, to $20.64 after the com­pany reported a loss that was larger than investors were expect­ing. Shop­pers have been aban­don­ing the store after it got rid of block­buster sales in favor of every­day low prices.

— Kayak Soft­ware surged $8.63, or 28 per­cent, to $39.67 after the com­pany said it had agreed to be bought by rival travel web­site Priceline.com.

Posted by AP News on Nov 9 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.