'Cliff' Talks Send Stocks on Roller Coaster Ride
Financial markets are becoming "cliff"-lashed.
With not much new, even the most bland comment from a key player in the "fiscal cliff" negotiations has the power to drive markets. The Dow traveled about 200 points, first down and then up on Wednesday, mainly on cliff talk. The market opened lower on worries about the fiscal cliff, as traders digested overnight news reports, showing no progress.
Then at mid-morning, House Speaker John Boehner sounded hopeful about a resolution when he acknowledged revenues would be part of a deal. Stocks reversed course and headed higher. They got a further boost from President Barack Obama, not because he softened his view on taxes, but because he gave the talks a sense of urgency and a short deadline — Christmas.
"It's the last person to speak. I think it was Boehner's tone, at least the headline out of it continued that kind of optimism we saw when the four of them first came out of the White House," said Art Cashin, director of floor operations at UBS. He was referring to the congressional leadership's first meeting with the president after the election, which helped spur a market rally. (Read More: Facing 'Cliff', Companies Plan More Share Buybacks.)
"They had second thoughts when the president spoke, then they seemed to brush them away," said Cashin. He said Obama showed no sign of changing his position on raising taxes for the wealthy when he spoke at midday. But the president did stress that Christmas deadline, a positive sign since many traders expect the talks to drag into January and then some.
By the end of trading Wednesday, the Dow was up 106 points at 12,984, riding a last minute burst on a late day Wall Street Journal story that said the Fed would continue asset purchases in 2012, as expected by many economists.
"The markets wanted to hear the president say a deal on the fiscal cliff would get done," wrote National Alliance Securities' Andrew Brenner, in a quick note. "He said it 17 times … which proves that if you say it enough, people will believe. … Do we believe it? Sorry Charlie …not a chance … the tax rates disagreements seemed to (be) ingrained in stone … and while a deal will get done eventually, we doubt today's rally can last until we hear more progress from Boehner and there are significant negotiations."
The fiscal cliff is the $500 billion or so hit to the economy from the reversal of tax breaks and new automatic spending cuts, starting Jan. 1, if Congress doesn't reach an agreement. (Read More: Congressional Proposal Could Create 'Bubble.')
One very interesting comment that the market seemed to ignore in its up again, down again fiscal hiccups Wednesday morning came from Erskine Bowles, who co-chaired the White House's 2010 deficit-reduction panel and is now working to try to broker a deal. Bowles said at a Christian Science Monitor breakfast that the White House will not stick to its current position that top tax rates revert to the Clinton-era levels.
Bowles' comments were based on his Tuesday meetings with Obama, Treasury Secretary Timothy Geithner and other White House negotiators. "I didn't sense it. I heard it," Bowles was quoted as saying on tax rates.
"If it (the market) really gets cliffed, maybe step up and take advantage of it little bit. It could be a good opportunity if you have a shopping list," said James Paulsen, chief investment strategist at Wells Capital Management.
"I just think there's very high odds that they'll eventually come to an agreement … some small tax hikes, some small spending cuts, and a lot of it will be put off for another day," Paulsen said. "The fiscal cliff is going to turn into a fiscal molehill."
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