Stocks Whipsawed by 'Fiscal Cliff' Talks, End Flat

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Stock MarketBy CHRISTINA REXRODE, AP Business Writer

NEW YORK (AP) - The "fiscal cliff" took the stock market on a roller coaster Thursday. Small developments in the tense budget standoff yanked stocks back and forth throughout the day.

In the end, U.S. stocks closed lower for the fourth day in a row, sending the unwelcome message that the budget standoff is still far from solved, the economy still far from healed.

The erratic performance underscored how the "fiscal cliff" can yank the market back and forth. The term refers to automatic tax increases and government spending cuts that will kick in next week if Republicans and Democrats can't reach a budget agreement by Monday night.

Stocks opened by hopping between small gains and losses, pulled up by news about fewer unemployment claims and down by the continuing lack of a budget deal in Washington.

Then, stocks turned decisively downward at mid-morning, unnerved by twin fetters: a report that consumer confidence fell to its lowest level since August, and a warning from the Senate Majority Leader, Democrat Harry Reid, that he feared the government would miss the Monday night deadline for working out a budget compromise.

A bright spot of economic news, an increase in sales of new homes, couldn't distract investors from worries about the budget impasse. Both Republicans and Democrats demanded that the other side take the initiative in compromising. The Dow Jones industrial average fell as much as 150 points, more than 1 percent.

Then, just as the Dow appeared headed toward a triple-digit loss, it whipsawed again, this time higher, after House leaders announced in the late afternoon that the chamber would meet Sunday evening to work on the budget.

At the close, stocks trimmed their losses but still closed lower. The Dow finished down 18.28 points to 13,096.31. The Standard & Poor's 500 index fell 1.73 to 1,418.10. The Nasdaq composite index lost 4.25 to 2,985.91.

Until recently, investors were treating the "fiscal cliff" with a measure of nonchalance. Stocks rose more or less steadily from mid-November until late last week.

But now, with the "fiscal cliff" deadline just days away and no deal in sight, more investors are paying attention.

"This is a matter of a few personalities; it isn't something where you can analyze spreadsheets to figure out what's going on," said David Kelly, chief global strategist at JPMorgan Funds. "There are very few investors on one side or the other who have wanted to make a strong bet on this one."

Many investors believe that the higher taxes and lower government spending could push the U.S. back into recession.

"This is not small potatoes," said Hugh Johnson, chairman and chief investment officer of Hugh Johnson Advisors in Albany, N.Y. "We're not going to miss a recession by much in 2013 as is."

To be sure, plenty of traders think the "fiscal cliff" is overhyped. Even if the government misses the Monday deadline, the higher taxes and lower government spending would take effect only gradually, and Congress could always repeal them.

Still, that doesn't mean they're not worried about the economy in general.

Derrick Irwin, portfolio manager for Wells Fargo Advantage Funds, said he's "not particularly concerned" about the fiscal cliff - but he is concerned about the economy.

"The economy is going to do what the economy is going to do," Irwin said, "it just doesn't look too good."

Trading volume was light, with many investors still on Christmas vacation. About 2.8 billion shares traded hands, compared to an average this year of about 3.6 billion. Light volume can make the market more volatile. When fewer shares are changing hands, relatively small trades can move the overall market.

The yield on the 10-year Treasury note edged down to 1.74 percent from 1.75 percent.

Among stocks making big moves:

-Chipmaker Marvell Technology Group (MRVL) dropped more than 3 percent, falling 26 cents to $7.14, after the company lost a patent case brought by Carnegie Mellon University. Marvell said it would fight the $1.2 billion ruling.

-JCPenney (JCP) fell nearly 6 percent, losing $1.23 to $19.52, after rising more than 4 percent the day before. The stock has been volatile as the company tries to remake its image to attract younger shoppers.

-Steinway Musical Instruments (LVB) fell more than 4 percent, down $1.02 to $21.50, after announcing that it doesn't plan to seek buyers.

___

AP Business Writer Daniel Wagner contributed from Washington.


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aftonmoon

This fiscal cliff nonsense is just a ruse to get the clueless Middle Class to accept austerity measures while the banks get a continuous infusion of tax payer financed life support to the tune of forty-five billion dollars a month, which keeps interest rates so low that those who saved can no longer live off their interest, wealth is harder to accumulate for the younger generation who are forced to make high risk investments if they are to accumulate enough to assist them in retirement, and pesnion funds cannot meet their obligations as they invest with the expectation of a certain return that is rapidly becoming unattainable. Of course the wealthy will become even richer from war profiteering, outsorcing and corporate welfare, as the middle class remains clueless. Furthermore, billions of dollars will continue to be wasted on maintaining an empire and supporting Israel with 3.5 billion dollars direct aid, loan forgiveness, and underwrting of additional loans, while the Israelis continue to steal and populate Palestinian lands. In short there will be no austerity imposed on The Pentagon, the banks, the corporations or on Israel; it wil all come form Middle Class progranms, and those programs that assist the unfortunate.

December 28 2012 at 5:36 AM Report abuse +1 rate up rate down Reply
BOB

The bottom line is no matter how many votes a President wins by. The history of this country will reflect in history books, for hundreds if not thousands of years, how well or how bad the President performed while in office. No matter who's to blame, Democratics and Republicians both. At the end of the day after his first 4 years in office, Obama will be taking responsibility for the countries failures and successes. Right now the column for success is pretty low. So much for your Obama wins huge in the voting column. Wow! Just think the books your grandkids will be reading about in history will be about mostly Obama and how he failed this country. They won't be saying, we blame this countries problems on Republicians, at least not in books about Obama. For in the end, all the blame and successes go to the President himself. So Obama is only hurting himself, if the system fails and the Republicians know this too.

December 28 2012 at 12:25 AM Report abuse +1 rate up rate down Reply
norman

"Whipsawed OR sluggish??"

December 27 2012 at 11:11 PM Report abuse -1 rate up rate down Reply
norman

Stocks WERE at 5,500 when the Bish recession hit. Now they are looking good.

December 27 2012 at 11:09 PM Report abuse -1 rate up rate down Reply
1 reply to norman's comment
democrackso

The Bish recession? What's the Bish recession? The only recession I know about is the Pelosi Reid recession of 2008 that's still going on.

What an Obamite

December 27 2012 at 11:17 PM Report abuse +2 rate up rate down Reply
Paul

Obamanomics

December 27 2012 at 6:21 PM Report abuse rate up rate down Reply