Stocks slump as fiscal cliff deadline nears

Updated: 11:45 p.m. Saturday

An ugly day in the stock market at Friday's close, courtesy of your friends in Washington. Stocks suffered their fifth straight day of losses, and the Dow Jones industrials ($INDU) closed below 13,000 for the first time since Nov. 28.

President Obama and congressional leaders met on Friday to discuss how to avoid the fiscal cliff -- the combination of tax increases and spending cuts required under a 2011 budget agreement. And it did not appear that anyone was willing to compromise.

Senate leaders spent Saturday trying to work out a deal, at the behest of President Obama. It was not clear if they will succeed.

Friday's sell-off sets up Monday, the last trading day of 2012, as potentially quite volatile because the change in tax rates and spending cuts is to take effect on Jan. 1. If nothing happens, Wednesday's trading, the first of 2013, could be even more volatile.

The market was modestly lower ahead of the first report of the president's proposal and promptly turned lower. The Dow closed down 158 points to 12,938. The Standard & Poor's 500 Index ($INX) was off 16 points to 1,402, and the Nasdaq Composite Index ($COMPX) fell 26 points to 2,960.
The losses for the Dow and the S&P 500 on Friday were their worst since Nov. 14 and the worst for the Nasdaq since Dec. 21. The sell-off wiped out the major averages' gains for December. The Dow is off 0.7% for the month, with the S&P 500 down 1% and the Nasdaq down 1.7%.

At Friday's meeting at the White House, the president offered only what he offered a week ago -- a full extension of the Bush tax cuts for taxpayers earning less than $250,000 a year and a delay in some of the spending cuts required under the 2011 budget bill. But Sens. Harry Reid, D-Nev., and Mitch McConnell, R-Ky., agreed Friday to try to work out a deal.

If the McConnell-Reid talks fail, the president wanted the Senate to schedule an up-or-down vote on a narrower measure that would extend only the middle-class tax breaks and unemployment benefits. Reid said he would schedule such a vote on Monday absent a deal.

Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, told reporters Friday that sentiment was "gelling" around a new offer, and a source told The New York Times the president would ask Republican and Democratic leaders what proposal could win majority support in the House and Senate.

With Friday's ugly market close and extreme uncertainty about what may happen over the weekend, here's what to watch for next week:

The tug-of-war will be brutal. Democrats and Republicans can barely stand the sight of each other. So, look for action only if financial markets really fall apart.

Falling apart could mean something like the extreme volatility in August 2011 when the battle over the debt ceiling resulted in Standard & Poor's downgrading U.S. debt.

The Dow moved up or down more than 400 points six times Aug. 4-18, 2001, and fell 10.4% between Aug. 3 and Oct. 3.

Next week will feature a group of key economic reports. Some, like the Institute for Supply Management's Manufacturing Index, due Wednesday, will shed light on the uncertainty the fiscal cliff has caused.

But automakers are expected to report on Wednesday that they had strong sales in December. It's 2013 that worries them.

The big report on the week will come on Jan. 4 when the Labor Department issues its December payroll and unemployment report.

Along with the Nasdaq, the Nasdaq-100 Index ($NDX) fell 27 points to 2,606. Apple (AAPL), which represents about 17% of the market capitalization of the stocks in the index, was off $5.47 to $509.59. Apple is off 27% since its Sept. 19 closing peak of $702.10.

None of the 30 Dow stocks was higher on the day. American Express (AXP) was the best performer, off 2 cents to $56.67. The laggard was Hewlett-Packard (HPQ), down 36 cents to $13.68. The stock is down nearly 47% in 2012 alone.

Only 20 S&P 500 stocks showed gains, led by commercial printer R.R. Donnelly (RRD) and Ford Motor (F). The laggards were Advanced Micro Devices (AMD), Jabil Circuit (JBL) and J.C. Penney (JCP).

Sears Holdings (SHLD) and Ross Stores (ROST) were the only Nasdaq-100 stocks to show gains. The biggest percentage loser was Garmin (GRMN), down $1.32 to $40.

As the market tumbled, gold (-GC) and crude oil (-CL) in New York also dropped. Gold settled at $1,655.90 an ounce, down $7.80. Crude oil was off 7 cents to $90.80 a barrel.

The declines were due to a rising dollar caused by investors looking for safety in U.S. government securities. The 10-year Treasury yield fell to 1.711% from Thursday's 1.715% and 1.754% a week ago.

But AAA reported that the national retail average price of gasoline hit $3.279 a gallon on Friday, up from $3.261 on Thursday. The average has risen for eight straight days since bottoming at $3.219 a gallon on Dec. 20.

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