Talks between Democrats and Republicans on the Fiscal Cliff issue took a negative turn, dragging the benchmarks into the red. Benchmarks posted their first weekly losses after rallying for two consecutive days. Housing starts declined in November, whereas building permits hit its highest level in more than four years. All ten of the S&P 500 industry groups ended in the red and the health care sector emerged as the biggest loser.
The Dow Jones Industrial Average (DJI) lost 0.7% to close the day at 13,251.97. The Standard & Poor 500 (S&P 500) dropped 0.8% to finish yesterday’s trading session at 1,435.81. The tech-laden Nasdaq Composite Index slipped 0.3% to end at 3,044.36. The fear-gauge CBOE Volatility Index (VIX) surged 11.5% to settle at 17.36. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.9 billion shares, higher than the daily average of 6.4 billion shares. The number of decliners and advancers were the same on the NYSE.
Benchmarks ended their two-day advance as investors remained apprehensive about the Fiscal Cliff issue. The S&P 500 had rallied over 2% in the last two days and touched its highest level in two months. In recent days, investors focus is centered around the Fiscal Cliff issue. Thus, any development on this front decides the movement of the markets.
House of Representatives Speaker John Boehner had earlier proposed “Plan B”, which stated that people earning above $1 million will have to pay higher tax rates. However, President Barack Obama disapproves of this plan. As for the recent development, speaking at a press conference, Boehner said: “Tomorrow, the House will pass legislation to make permanent tax relief for nearly every American—99.81 percent of the American people…Then the president will have a decision to make: He can call on Senate Democrats to pass that bill or he can be responsible for the largest tax increase in American history.”
However, if Congress passes the Republican “Plan B” then Obama plans to veto the legislation. White House Communications Director Dan Pfeiffer said: “This approach does not meet the test of balance, and the President would veto the legislation in the unlikely event of its passage.” However, President Obama said he is hopeful that a deal will be reached before Christmas. Obama also said he and Boehner will have to reduce a gap of “a few hundred billion dollars” to solve the Fiscal Cliff issue.
Meanwhile, the U.S. Census Bureau and the Department of Housing and Urban Development jointly announced that building permits increased in November by 31,000 to a seasonally adjusted annual rate of 899,000 from revised October figure of 868,000. This was above consensus estimates of 872,000. However, the report also mentioned that housing starts decreased by 3.0% to a seasonally adjusted annual rate of 861,000 from the revised October figure of 868,000. This was below consensus estimates of 875,000.
The SPDR S&P Homebuilders (XHB) fell 0.5% following the mixed report on the housing sector. Stocks such as Toll Brothers Inc (NYSE:TOL), PulteGroup, Inc. (NYSE:PHM), KB Home (NYSE:KBH), The Ryland Group, Inc. (NYSE:RYL) and Lennar Corporation (NYSE:LEN) slipped 1.3%, 0.8%, 2.0%, 0.5% and 1.1%, respectively.
The health care sector was the biggest loser among the S&P 500 industry groups. The Health Care SPDR (XLV) lost 1.1%. Stocks such as Pfizer Inc. (NYSE:PFE), GlaxoSmithKline plc (NYSE:GSK), Mylan Inc. (NASDAQ:MYL), Bristol Myers Squibb Co. (NYSE:BMY) and Johnson & Johnson (NYSE:JNJ) dropped 1.1%, 0.7%, 2.0%, 1.4% and 0.5%, respectively.