MARKET REPORT

Budget jitters set in, stocks dive

Trader Joseph Lawler (left) and specialist Jay Woods work Friday on the floor of the New York Stock Exchange, where stocks fell after a U.S. House bill to avoid end-of-the-year tax increases and government spending cuts stalled.
Trader Joseph Lawler (left) and specialist Jay Woods work Friday on the floor of the New York Stock Exchange, where stocks fell after a U.S. House bill to avoid end-of-the-year tax increases and government spending cuts stalled.

— 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 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.

Two stocks fell for every one that rose on the New York Stock Exchange.

Consolidated volume was 4.7 billion shares, higher than the recent average.

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 Jan. 1 for almost all Americans 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.

But Boehner said he scrapped a vote on the bill Thursday night after it became clear to him 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 percentage point. Gold rose $14.20 to $1,660.10 an ounce.

If budget talks drag 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.”

Business, Pages 28 on 12/22/2012

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