December 1, 2012 in City

Stocks stagnate; focus is on budget

Steve Rothwell Associated Press
 

NEW YORK – Stocks ended the week more or less where they started it. Investors were watching closely while lawmakers in Washington worked at thrashing out a budget agreement.

After inching 3.76 points higher on Friday, the Dow Jones industrial average closed at 13,025.58. That’s a gain of just 16 points for the week, one of the Dow’s smallest moves this year.

Along the way, the market had several sharp turns both up and down after key figures in the talks, such as House Speaker John Boehner and President Barack Obama, offered contrasting views about how well the talks were going.

The main driver for markets this week has been the talks between the White House and Congress over the “fiscal cliff,” a series of sharp government spending cuts and tax increases scheduled to start Jan. 1 unless an agreement is reached to cut the budget deficit. Economists say that those measures, if implemented, could push the U.S. economy back into a recession.

Optimism that a deal will be done was greeted with rallies, while pessimistic comments from lawmakers were followed by sell-offs.

“Right now the market is just going to be held hostage as to what happens in the next five hours, versus what’s going to happen in the next five years,” said Dan Veru, chief investment officer at Palisade Capital Management, in Fort Lee, New Jersey.

President Obama argued Friday that allowing taxes to rise for the middle class would amount to a “lump of coal” for Christmas, while Boehner declared that negotiations to surmount a looming fiscal cliff are going “almost nowhere.”

“My sense is that investors are going to be busy reading headlines every day for the next three weeks,” said Jack Ablin, chief investment officer at BMO Group in Chicago.

Ablin said he expects policy makers to reach a temporary agreement on the budget before year-end, before coming to a “Grand Bargain” next year. He believes improving consumer confidence and rising house prices will underpin the economy and support demand for stocks.

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