Stocks Fall Sharply; Investors Fret About 'Cliff'

Traders work on the floor of the New York Stock ExchangeBy STEVE ROTHWELL, AP Business Writer

NEW YORK (AP) - Investors drew little hope Wednesday for a quick compromise in U.S. budget talks after President Barack Obama insisted that higher taxes on wealthy Americans would have to be part of any deal.

Stocks fell sharply, and even a signal from the Federal Reserve that it could launch a program in December to speed job growth failed to encourage investors. The Dow Jones industrial average dropped 185 points.

Obama made clear he would seek higher tax revenue from the wealthiest Americans, which faces opposition among some Republicans in Congress. Obama said that a modest increase on the wealthy "is not going to break their backs."

"The Street was looking for him to say some magic buzzwords about avoiding the 'fiscal cliff,' about cooperation," said Sal Arnuk of Themis trading, a New Jersey brokerage. Instead, Arnuk said, the remarks were "unyielding."

The "cliff" is a package of tax increases and government spending cuts that will take effect Jan. 1 unless Obama and Congress reach a deal first. They would total about $700 billion for 2013 and could send the country back into recession.

Stocks have fallen steadily since voters returned Obama and a divided Congress to power Nov. 6. The Dow has fallen 675 points, or 5.1 percent, including three daily drops of more than 100 points.

The Standard & Poor's 500 index has dropped 5 percent in that time, returning to where it stood in late July.

"Investors' hopes that the election would end uncertainty remain unfulfilled," said Lawrence Creatura, a portfolio manager at Federated Investors in Rochester, N.Y. "It's very tough to determine what happens next."

Obama said Wednesday that he would not to cave to Republicans who have pressed for tax cuts first passed by President George W. Bush to be extended for all income earners.

Obama has long opposed extending the cuts for families making more than $250,000 a year, but he gave in to GOP demands in 2010, when the cuts were up for renewal. They were extended two years.

The president also met with business leaders Wednesday to discuss the economy.

Obama is to meet Friday with Republican House Speaker John Boehner and the top Republican in the Senate, Mitch McConnell. They are expected to designate aides to begin the search for a compromise on the budget.

Boehner and McConnell have said they won't agree to raise tax rates for the wealthy. They have said they are willing to support raising overall tax revenue as part of a deal that also makes changes to the government's largest benefit programs.

There are ways to increase tax revenue from the wealthy without raising rates, including limiting tax deductions, but the path to compromise is unclear. Obama sidestepped a question about insisting on higher rates for the wealthy.

"I just want to emphasize I am open to new ideas if the Republican counterparts or some Democrats have a great idea for us to raise revenue, maintain progressivity, make sure the middle class isn't getting hit, reduces our deficit," he said.

On Wednesday, the Dow dropped 185.23 points, or 1.5 percent, to 12,570.95. The S&P fell 19.04 points, or 1.4 percent, to 1,355.49, and the Nasdaq composite declined 37.08 points, or 1.29 percent, to 2,846.81.

Indexes are still up on the year, though they have pared gains since reaching four-year highs. The S&P has fallen 7.5 percent since its Sept. 14 peak, and the Dow has fallen 7.6 percent, more than 1,000 points, since its Oct. 5 peak.

Among individual stocks, Abercrombie & Fitch, which sells teen clothes, bucked the trend of a declining market and was by far the best-performing stock in the S&P 500.

Abercrombie jumped $10.54 to $41.92 after reporting that its international business was thriving and that its net income soared 40 percent in the most recent quarter, more than financial analysts were expecting.

The Commerce Department said that Americans cut back on spending in October, suggesting that many are still cautious about the economy.

Sales dropped 0.3 percent last month after three months of gains. That was worse than analysts had been expecting, according to FactSet, a provider of financial data.

The government also said auto sales fell 1.5 percent, the most in more than a year. Sales may have been hurt by Superstorm Sandy.

The Federal Reserve released minutes of its October meeting and suggested that it may replace a soon-to-end program of buying U.S. government bonds to lower long-term interest rates and spur job growth.

Under an existing program, known as Operation Twist, the Fed has been selling $45 billion a month in short-term Treasurys and using the proceeds to buy an equal amount of longer-term securities.

The Fed minutes showed support among "a number of" Fed policymakers to replace Twist with another program of long-term bond purchases when it ends in December.

The purchases are intended to lower long-term borrowing rates to encourage spending and strengthen the economy. The hope is that more hiring would follow. The yield on the 10-year Treasury note was unchanged at 1.59 percent.

Among other stocks making big moves:

- Cisco Systems, the world's largest maker of computer networking equipment, gained 81 cents, or 4.8 percent, to $17.66. Cisco said late Tuesday that its earnings rose 18 percent in the latest quarter and that U.S. companies are starting to spend again.

- Mosaic, a company that mines for potash, a key ingredient in fertilizers, slipped $1.65, or 3.3 percent, to $49.10 after saying that international demand for its product had weakened and that it was lowering its sales forecasts.

- Advanced Micro Devices, a chipmaker, slumped 16 cents, or 7.7 percent, to $1.93 after the company denied a report that said it was considering a sale. The stock has lost about 77 percent since March because of dwindling sales.

- Facebook jumped $2.50, or 12.6 percent, to $22.36. Wednesday was the expiration of a so-called lockup period that prevents insiders from selling stock immediately after a company goes public. About 850 million shares are being freed for sale.

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Obama is completely clueless. He had no idea what to do and is using all of us as pawns.

December 05 2012 at 11:55 PM Report abuse rate up rate down Reply

It's all about the "Fiscal Cliff" and ending Bush's tax breaks and Obama wanting the plus 250 grand earners to lose the tax break. Simple fact is congress is made up of millionaires and they don't want to raise their taxes. They also want the break for their millionaire campaign donors and PACs. He has to renew the breaks for everyone or let it expire for everyone. The super rich have "Tax Accountants" to move their money around to avoid paying taxes
Better yet push all career politicians over a cliff.
Maybe if Romney didn't keep changing his stance and hadn't come across as a self righteous snob who showed nothing but contempt for the middle class, maybe half the voters would not of voted against him.

November 17 2012 at 8:47 AM Report abuse rate up rate down Reply


November 15 2012 at 7:13 PM Report abuse +1 rate up rate down Reply

Welcome to the wonderful dreamworld of far left fiscal policy......This is where they believe taxing those awful rich people will solve all our problems....Unfortunately they don't realize those same awful rich folks HIRE all the wonderful poor folks........DUHHHHHHHH !!!!!!!!

November 15 2012 at 3:01 PM Report abuse +1 rate up rate down Reply

Anyone can do that, not just the "fat cat's" That's what makes this country great

November 15 2012 at 1:43 PM Report abuse +1 rate up rate down Reply

"Stocks Tank ... and It's Obama's Fault?"

Of course not. NOTHING that has happened over the past four DISASTROUS years is your Messiah's fault, ask him! Do you not remember the interview he gave a year or so ago where he told us that ALL the decisions he made were the RIGHT ones, but he just ran into some bad luck that NO other president had to deal with! HE'S DELUSIONAL!

And NOTHING that happens in the next four years will be his fault, unless it's good, which is HIGHLY unlikely!
None of the following is Obama's fault:
SURPRISE: Highest number of new jobless claims -- OH, PA...
CNBC: Bartiromo: 'Fiscal Cliff' Deal? Don't Count on It...
DENNY'S to charge 5% 'Obamacare surcharge' and cut employee hours..
TEXAS INSTRUMENTS Cuts 5% of Workforce...
U.S. Postal Service Loses Record $15.9 Billion...
Euro zone falls into second recession since 2009 (Guess who's next!)
Applications for jobless benefits surged by 78,000 to 439,000 in the week ended Nov.(HIGHEST LEVEL IN 18 MONTHS!)
Census: U.S. Poverty Rate Spikes, Nearly 50 Million Americans Affected

Good bye my beloved America, I'm going to miss you. Will the last one to leave please turn off the lights!

November 15 2012 at 12:57 PM Report abuse +3 rate up rate down Reply

Yes, this economic climate is all his now. Look for $10 gas and double digit inflation in the next four years.

November 15 2012 at 12:14 PM Report abuse rate up rate down Reply
1 reply to granaryst's comment

Just the way Obama said he wanted it years ago.

November 15 2012 at 1:22 PM Report abuse +1 rate up rate down Reply

The stock market is looking for an excuse. What about the excuse of making the gov't look bad.

November 15 2012 at 10:52 AM Report abuse -1 rate up rate down Reply
1 reply to Ronald's comment

The government can do that all by istself.

November 15 2012 at 10:55 AM Report abuse +3 rate up rate down Reply

What's funny is Huffington Post seems surprised it would happen or their guy Mr O is getting the blame. All the layoffs pending since election aren't because corporations are the evil empire that left makes them out to be. It's simple economics combined with unrealistic regulations like Obamacare. DaveJr comments are correct on taxing "the evil rich". In fact if you taxed 100% of those making over $250,000 a year you'd still not make a dent in the deficit. As Mr O and his class warfare machine would say "it's math".

November 15 2012 at 10:49 AM Report abuse -2 rate up rate down Reply

With the amount of money our government is spending taxing people who make over 250K won't even dent what this runaway government. Here's an idea. One Flat tax across the board. This would make it easier to file taxes. The IRS could then be down sized (smaller government). Now this would be fair.

November 15 2012 at 10:23 AM Report abuse rate up rate down Reply