Stocks Sink After Republicans Cancel Budget Vote

NEW YORK (AP) - Investors sent Washington a reminder Friday that Wall Street is a power player in talks to avoid the "fiscal cliff."

Stocks fell sharply after House Republicans called off a vote on tax rates and left federal budget talks in disarray 10 days before sweeping tax increases and government spending cuts are scheduled to take effect.

The Dow Jones industrial average lost as much as 189 points before closing down 120.88 points, or 0.9 percent, at 13,190.84. The Standard & Poor's 500 index fell 13.54 points to 1,430.15. The Nasdaq composite index declined 29.38 to 3,021.01.

The House bill would have raised taxes on Americans making at least $1 million per year and locked in decade-old tax cuts for Americans making less. Taxes will rise for almost all Americans on Jan. 1 unless Congress acts.

House Speaker John Boehner had presented what he called "Plan B" while he negotiated with the White House on avoiding the sweeping tax increases and spending cuts, a combination known as the fiscal cliff.

But Boehner scrapped a vote on the bill Thursday night after it became clear that it did not have enough support in the Republican-led House to secure passage. He called on the White House and the Democratic-led Senate to work something out.

The market's decline demonstrated that investors' nerves are raw as they await a resolution.

"Where we are today, the market would be satisfied with the announcement of a stopgap measure," said Quincy Krosby, a market strategist at Prudential Financial. "The more the clock ticks, the more the market is saying, 'Just give us something.'"

Sal Arnuk, a partner at Themis Trading, suggested that the sharp drop in stocks early in the day might have been an overreaction. The Dow was down as much as 189 points, and before the market opened, stock futures suggested a decline of 200 points or more.

"It's not a surprise that they weren't able to come to an agreement," he said. I don't think most of Wall Street anticipated that they would come to an agreement."

Other markets registered their concern, but the reaction was not extreme. The yield on the benchmark 10-year U.S. Treasury note fell 0.04 percentage point to 1.76 percent.

The price of gold, which some investors buy when fear overtakes the market, climbed, but only by 0.9 percent. Gold rose $14.20 to $1,660.10 an ounce.

If the full fiscal cliff takes effect, economists say it could drag the United States into recession next year. The impact would be gradual, though, and a recession is not a sure thing.

Most people would receive only slightly less money in each paycheck. And the tax increases and spending cuts could be retroactively repealed if a deal comes together after Jan. 1.

If budget talks dragged on, many businesses might put off investment or hiring, and consumer spending could suffer. That's why most economists say it would be crucial to reach a deal within roughly the first two months of 2013.

"Believe you me," Krosby said, "if you think that there is a recession in the offing you are going to see this market sell off. It's sell off first, ask questions later."

It was not the first time that Wall Street worried about the fiscal cliff talks.

On the day after the election, when voters returned divided government to power, the Dow dropped 312 points. On Nov. 14, when President Barack Obama insisted on higher tax rates for the wealthy, the Dow dropped 185 points.

The sharp drop in stocks Friday was reminiscent of, although much smaller in scale than, what happened Sept. 29, 2008, during the financial crisis.

The House defeated a proposed $700 billion bailout of the U.S. financial industry, and the Dow plunged 777 points, its worst one-day decline. Four days later, the House, shaken by what had happened on Wall Street, passed a modified bill.

Stocks closed lower Friday in Asia after House Republicans canceled their vote. The Nikkei index in Japan fell almost 1 percent, and Hong Kong's Hang Seng Index dropped 0.7 percent. Stocks were also lower in Europe.

Among stocks making big moves:

- Walgreen (WAG), the nation's largest drugstore chain, slumped $1.24, or 3.3 percent, to $36.31. It filled fewer prescriptions and absorbed costs tied to acquisitions and Superstorm Sandy. The results were worse than financial analysts had been expecting.

- BlackBerry maker Research in Motion (RIMM) dropped $2.21, or 15.8 percent, to $11.74. The company said it won't generate as much revenue from telecommunications carriers once it releases the BlackBerry 10.

- Nike (NIKE), the world's largest maker of athletic gear, jumped $6.10, or 6.2 percent, to $105.10. It said strong demand in North America led to a 7 percent increase in revenue in the three months ended Nov. 30, balancing out economic weakness in Europe and a slowdown in growth in China.

- Micron Technology (MU) dropped 6.9 percent, the biggest decline in the S&P 500 index. The semiconductor maker reported a loss late Thursday as weaker demand for personal computers and an oversupply of certain chips hurt its sales. The stock lost 47 cents to $6.32.

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And the GOP wonders why they cant win elections.

December 24 2012 at 6:44 AM Report abuse +1 rate up rate down Reply

The country sinks as the GOP led house fiddles.

December 24 2012 at 6:37 AM Report abuse +2 rate up rate down Reply

Republicans = Lowest IQ of the human race.

December 24 2012 at 1:40 AM Report abuse +2 rate up rate down Reply
Johnny !

The stock market is mainly based on emotional responses to what's currently in the news. Solid companies' stocks will always prevail and any setback is only temporary. If anyone is in it for a quick "killing," they're in the wrong place......

December 23 2012 at 8:15 PM Report abuse rate up rate down Reply
crazy ray

These politicians - all of them - should be in jail. From now on, I will suspend all votes for incumbents.
These people will let the country go down the tubes and go on vacation. Time to set up the gullotines again.

December 23 2012 at 4:55 PM Report abuse +1 rate up rate down Reply

Oh my, 1 or 2% drop in the stock market. WHERE will it end?? What about the 60% people lost on their housing prices?

December 23 2012 at 1:51 PM Report abuse +2 rate up rate down Reply

The Republicans are bad for this country in so many ways.

December 23 2012 at 10:14 AM Report abuse +2 rate up rate down Reply

Am surprised that the market isn't going down every day, with Obama wanting to spend us into oblivion. 16 trillion dollars in debt with a 1.5 Trillion deficit apparently is just chump change to politicians. O wants to cut 10% of his spending increase. Eventually the real cliff will be in front of us, then watch the blame go around.

December 23 2012 at 9:06 AM Report abuse -2 rate up rate down Reply

The tax cuts and tax hikes were already worked out months ago AND agreed to by both parties. They will take place Jan 1, 2013..STOP the parties drama ! It gets people so worked up over something that both parties already agreed too already. Just plain media hype. Let's move on to something real like negotiations over the National debt and debt ceiling.

December 23 2012 at 8:38 AM Report abuse rate up rate down Reply

Redistribution of wealth is not rich paying more so more folks can be on welfare. They would like you to believe this so you hate Obama. No what I would like ot believe is that it it time corporations stop paying do nothing CEO's billions and bonus's on top and spread that wealth a little more fairly to those who actually create and generate those earnings. The top gets too much while everyone else works their ass off just to buy food. The economy will not recover until the middle class has enough money for a few luxuries in their lives. Not a new car every year but at least a week vacation and a few movies and dinner out.

December 23 2012 at 6:28 AM Report abuse +2 rate up rate down Reply