Investor fears about the Fiscal Cliff dilemma and a decline in consumer confidence dragged the benchmarks into negative territory on Thursday. Benchmarks ended in the red for the fourth consecutive day. Consumer confidence dropped to its lowest level since August in December. Meanwhile, a couple of positive domestic reports were released. Initial claims dropped during the previous week and new home sales increased in November. The materials sector was the biggest loser among the S&P 500 industry groups.
The Dow Jones Industrial Average (DJI) lost 0.1% to close the day at 13,096.31. The Standard & Poor 500 (S&P 500) shed 0.1% to finish yesterday’s trading session at 1,418.10. The tech-laden Nasdaq Composite Index slipped 0.1% to end at 2,985.91.The fear-gauge CBOE Volatility Index (VIX) lost 0.1% to settle at 19.47. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.18 billion shares, considerably lower than the daily average of 6.48 billion shares. Declining stocks outpaced advancers on the NYSE; as for 53% stocks that fell, 44% stocks moved higher.
Most stocks were oscillating between small gains and losses in the opening session. But benchmarks fell sharply after Senate Majority leader Harry Reid made discouraging comments on the Fiscal Cliff issue. In the afternoon benchmarks declined more than 1% but pared most of their losses before the closing bell after the House of Representatives Speaker John Boehner said the House would meet gain on Sunday to resolve the Fiscal Cliff issue.
Democrats and Republicans are still very far away from sealing a deal on the Fiscal Cliff issue. Senate Majority leader Harry Reid said it is likely that Congress will not be able to resolve the Fiscal Cliff issue before January 1. Harry Reid also blamed Boehner for not immediately calling the House to meet again. If Congress fails to resolve the Fiscal Cliff dilemma in few days then it will take effect from Tuesday and may result in a recession.
President Barack Obama has returned from Hawaii and has called Congress leaders to discuss the Fiscal Cliff issue. This will be President Obama’s first meeting with Congressional leaders since November 16. Senate Minority Leader Mitch McConnell said: “We'll see what the president has to propose. Members on both sides of the aisle will review it, and then we'll decide how best to proceed.”
Meanwhile, the uncertainty surrounding the Fiscal Cliff issue has not only dented the growth of markets but also affected the confidence of consumers. The consumer confidence index declined to 65.1 in December from the revised November figure of 71.5. This was well below consensus estimates of 71. The Expectations index fell sharply to 66.5 from 80.9 whereas the Present Situation index surged to 62.8 from the previous month’s figure of 57.4.
Additionally, the U.S. Department of Labor revealed that the number of Americans filing for unemployment benefits declined during the previous week. According to the report, the advance figure of seasonally adjusted initial claims declined 12,000 to 350,000 for the week ending December 22 from the prior week’s revised figure of 362,000. This was below consensus estimates of 358,000. The four-week moving average declined to 356,750, its lowest point since March 2008.
The street received yet another encouraging report from housing sector. The U.S. Census Bureau and the Department of Housing and Urban Development jointly reported new home sales data which noted that an increase in new home sales occurred in November. According to the report, sales of new single-family houses increased 4.4% to a seasonally adjusted annual rate of 377,000 from the revised October figure of 361,000. The November figure of new home sales is below consensus estimates of 379,000. In recent days, encouraging economic reports have had hardly any effect on the markets. Investors are only paying heed to developments regarding the Fiscal Cliff issue.
The materials sector was the biggest loser among the S&P 500 industry groups and the Materials Select Sector SPDR (XLB) lost 0.4%. Stocks such as The Dow Chemical Company (NYSE:DOW), PPG Industries, Inc. (NYSE:PPG), Monsanto Company (NYSE:MON), American Vanguard Corp. (NYSE:AVD) and Ashland Inc. (NYSE:ASH) slipped 0.9%, 1.2%, 0.1%, 1.9% and 0.3%, respectively.