Stocks rebound from 'fiscal cliff' worries

The Dow ends down 18 points after falling as many as 151. The catalyst: News that the House will meet Sunday to discuss the fiscal cliff dispute. Apple leads the rebound. Jobless claims fall, but consumer confidence sags.

By Charley Blaine Dec 27, 2012 2:18PM
© Image Source, Getty ImagesUpdated: 5:32 p.m. ET.

Stocks stormed back from sharp losses Thursday on news that the House of Representatives will convene Sunday evening in an attempt to end the nation's bitter budget dispute.

While the major averages suffered their fourth losses in a row, the big rebound was welcome news after Senate Majority Leader Harry Reid, D-Nev., had said earlier that a resolution to the "fiscal cliff" fight before Jan. 1 appeared unlikely because Republicans wouldn't cooperate.

After Reid made his comments, the Dow Jones Industrial Average ($INDU) fell to a loss of as many as 151 points and dropped under 13,000 for the first time since Dec. 4.

With the news on the House Sunday session, the blue chips rebounded to 13,096, down 18 points on the day. The Standard & Poor's 500 Index ($INX) was off 2 points to 1,418, and the Nasdaq Composite Index ($COMPX) dropped 4 points to 2,986.
If a deal can't be struck between Democrats and Republicans, an $800 billion combination of tax increases and federal spending cuts will kick in, which could set off a new recession. When the "fiscal cliff" provisions would kick in not clear. It looks like March. 

The idea that no one would even try to address the budget dispute was unsettling to those on Wall Street actually working. Typically, volumes are down between Christmas and New Year's.

At the same time, an even nastier battle is looming on raising the nation's debt ceiling. The ceiling technically will be reached by Monday, Treasury Secretary Tim Geithner wrote to Congressional leaders late Wednesday, but the Treasury has the flexibility to keep the government operating until probably March 1.

"I have to be very honest," Sen. Reid said as the Senate convened Thursday in an unusual session between Christmas and New Year’s Day. "I don't know time-wise how it can happen now."

Reid offered his pessimistic assessment shortly before President Obama, cutting his vacation short, arrived back in Washington on Air Force One. White House officials said that before leaving Hawaii, the President had spoken separately by phone with each of the four Congressional leaders about the status of negotiations, but they gave no details of the discussion.

'Fiscal cliff' sets off a sell-off and a rebound
Since the November elections, the stock market has moved up or down depending on if investors believed a budget deal might be coming together. Thursday was another one of those days.

The S&P 500 had been down as many 18 points and nearly fell below 1,400 on an intraday basis for the first time since Nov. 28; it hasn't closed under 1,400 since Nov. 27. The Nasdaq had been down as many as 39 points.

The Nasdaq-100 Index ($NDX), which tracks the largest Nasdaq stocks, had dropped as many as 38 points in the early afternoon but recovered to 2,633, a loss of 4 points.

Apple (AAPL), which has the largest weight in the index, had recovered entirely from a tumble down to $505.60. It closed up $2.06 to $515.06. For Apple's shares, $505 has emerged as a key support level.

Economy appears held back by budget fight
The pessimism about the "fiscal cliff" came as the Conference Board said the budget debate caused consumer confidence to fall more than forecast in December.

The Conference Board's index of sentiment fell to 65.1 from a revised 71.5 reading for November. The gauge was projected to fall to 70, according to the Bloomberg survey median.

And there were indications that the holiday shopping season fizzled at the end as consumers worried about what might happen starting in January.

There was some good news Thursday: New-home sales were up 4.4% in November from October to a seasonally adjusted 377,000 units. The sales rate was the best since April 2010 and was up 15.3% from November 2011. Homebuilding shares, however, were lower.

At the same time, initial jobless claims fell to 350,000 in the week ended Dec. 22. The week before, claims were at a seasonally adjusted 362,000. Claims have recovered from an uptick after Superstorm Sandy. 

December and the year struggles to a close
Not only did the market fall for a fourth straight day, it was down for the fifth day in the last six. If the market ends the month at current levels, the Dow will be up 0.5%. The S&P 500 will be up 0.1%, with the Nasdaq down 0.8%. Apple is weighing on the Nasdaq.

For the year, the Dow is up 7.2% with the S&P 500 up 12.8% and the Nasdaq up 14.6%.

Only three of the 30 Dow stocks were higher: MSN Money publisher Microsoft (MSFT), UnitedHealth Group (UNH) and Wal-Mart Stores (WMT). The Dow's weak links were Cisco Systems (CSCO), Alcoa (AA) and JPMorgan Chase (JPM).

Meanwhile, 188 S&P 500 stocks were higher, along with 32 Nasdaq-100 stocks.

Crude oil
(-CL) settled down 11 cents to $90.87 a barrel in New York but is still up 2.5% this week. The retail price of gasoline was up 1.4 cents to $3.261 a gallon, according to AAA's Daily Fuel Gauge Report.`

Gold (-GC) was up $3 to $1,663.70 an ounce. Interest rates fell as investors sought safety. The 10-year Treasury yield fell to 1.715% from Wednesday's 1.758%.

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