Stocks higher on hopes for a deal to avoid 'cliff'
Nov. 28, 2012 at 5:28 a.m.
NEW YORK (AP) - Stocks gained on signs that lawmakers are edging towards a deal that would help the U.S. avoid the "fiscal cliff."
Indexes shrugged off an early loss and were higher in early afternoon trading. As of 3:30 p.m. the Dow Jones industrial average was up 95 points at 12,973. It had been down as much as 112 points shortly after the opening bell.
The Standard and Poor's 500 was up nine points at 1,408. The Nasdaq composite was up 20 points at 2,988.
Huge tax increases and spending cuts will come into effect Jan. 1 if no deal on the U.S. budget is reached. Economists say the measures could push the U.S. back into recession. President Barack Obama said he believed that both parties can reach a "framework" on a debt-cutting deal before Christmas, while House Speaker John Boehner told reporters that he was optimistic a deal could be reached, according to news outlets including CNBC.
Craig Johnson, a Minneapolis, Minn.-based technical market strategist at Piper Jaffray, said lawmakers realize that there is too much at stake to allow the deadline to pass without reaching a deal.
"I don't think that anybody in Washington is going to do something so draconian, or so negative, that we're going to trigger a recession," Johnson said. "There will be some compromise."
Concern that the U.S. will go over the fiscal "cliff" has weighed on stocks since the Nov. 6 elections returned a divided government to power, with President Barack Obama staying in the White House and Republicans retaining control of the House.
Uncertainty about possible higher taxes for capital gains are prompting investors to consider selling stocks, said Johnson.
Many companies are making special end-of-year dividend payments or moving up their quarterly payouts because investors will have to pay higher taxes on dividend income starting in 2013, unless lawmakers reach a compromise on taxes and government spending.
Costco, the wholesale club operator, surged $5.80 to $102.3 after the company said that it would pay a special dividend of $7 a share next month, in addition to the regular quarterly dividend it pays shareholders. Las Vegas Sands Corp. rose Tuesday after the casino operator said it would distribute about $2.26 billion to shareholders before the end of the year.
With the market's attention focused on the outcome of the "cliff" negotiations, some investors are also cautioning third-quarter earnings do not bode well for the stock market.
"Think of corporate earnings as the canary in the coal mine," said Douglas Cote, chief market strategist at ING U.S. Investment Management. "Corporations are the first ones to signal that there is something going on with economic growth around the world."
Company earnings are down 0.9 percent in the third quarter, data provider FactSet said in a report Nov. 23. If they earning finish the period lower, it would mark the first decline in three years.
In economic news Wednesday, U.S. sales of new homes dipped 0.3 percent in October, though they're up 20.4 percent for the year, according to a government report. Stable home prices suggest the housing market is steadily recovering.
A pickup in consumer spending and steady home sales helped lift economic growth in October and early November in most parts of the United States, according to a Federal Reserve survey released Wednesday. The one exception was the Northeast, which was slowed by Superstorm Sandy.
The yield on the 10-year Treasury note fell to 1.62 percent from 1.64 percent.
Among stocks making big moves:
- Green Mountain Coffee Roasters surged $7.17 to $36.13 after the beleaguered coffee company reported fourth-quarter results and guidance that far exceeded the market's expectations.
-Fresh Market Inc. plunged $7.61 to $52.62, after the company's fiscal third-quarter profit fell short of analysts' expectations.