Stocks: All eyes on fiscal cliff debate

Friday, November 16, 2012 - 9:59am

U.S. stocks spent another day in the red Friday as investors continued to keep a wary eye on negotiations in Washington over the fiscal cliff.

The Dow Jones industrial average, S&P 500 and Nasdaq were down about 0.3% in mid-morning trading.

President Obama is meeting with top congressional leaders Friday to discuss how they can avoid the fiscal cliff, the automatic onset of tax increases and spending cuts on Jan.1. The president has vowed not to keep the Bush tax cuts in place for Americans earning more than $200,000, and investors are also bracing for tax hikes on capital gains and carried interest.

A report in the Wall Street Journal provided a bit of optimism, but investors will continue to remain cautious ahead of a deal. The report said the Obama administration is considering a plan to replace massive spending cuts with a combination of smaller, targeted cuts and tax increases. By postponing the so-called sequester, lawmakers could put off a number of large deficit-reduction decisions until mid-2013.

Investors have been on edge since Election Day as they've been keeping tabs on the fiscal cliff debate closely. Since Obama's re-election last week, all three indexes have lost more than 5%. They're down more than 2% this week alone.

Earlier this week, Obama spoke with labor and business leaders about his priorities in the negotiations.

Minutes before the opening bell, a Federal Reserve report showed U.S. industrial production fell 0.4% in October. While the data fell short of economists' forecasts, it was likely impacted by Superstorm Sandy.

Investors will also mull the Federal Reserve's latest guidelines for bank stress tests, released Thursday evening.

U.S. stocks fell Thursday, in the third straight decline for all three major indexes.

In Europe, investors also have their attention on the fiscal cliff negotiations in the United States. European stocks were lower in afternoon trading. Britain's FTSE 100 slid 0.8%, the DAX in Germany fell 0.7% and France's CAC 40 slipped 0.1%.

Asian markets ended mixed. The Shanghai Composite lost 0.8%, while the Hang Seng in Hong Kong gained 0.2%, and Japan's Nikkei rose 2.2%.

Companies: Dell shares fell after the company announced disappointing third quarter results late Thursday, falling short of forecasts on both revenue and earnings. Income fell 47% over the same period last year, on weak PC sales. Rival Hewlett-Packard is set to report its latest earnings next Tuesday.

Gap shares rose after the retailer reported strong third quarter earnings late Thursday.

Sears Holdings, led by hedge fund manager Eddie Lampert, posted a quarterly loss Thursday of $498 million, much worse than analysts were expecting and wider than its year-earlier loss. Sales slid about 6% during the quarter. Shares of Sears tumbled 15%, making it the worst performer on the S&P 500.

Currencies and commodities: The dollar rose against the euro but fell versus the British pound and the Japanese yen.

Crude oil for December delivery rose 85 cents to $86.30 a barrel.

Investors are closely watching violence in the Middle East. Israel launched a series of air strikes Wednesday on what it said were terrorist targets in Gaza, and the Palestinian group Hamas vowed retaliation.

Gold futures for December delivery were down $3.20 $1,710.60 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury edged higher, pushing the yield down to 1.58% from 1.59% late Thursday.

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