U.S. stocks were down sharply in midday trading on Friday, after Washington failed to agree on a budget before the Christmas break, significantly raising odds that the country will face automatic tax increases and spending cuts in the new year. Canadian stocks were stable.
At noon, the S&P 500 was down 20 points or 1.4 per cent, to 1423. The blue-chip Dow Jones industrial average was down 168 points or 1.3 per cent, to 13,144. In Canada, the S&P/TSX composite index was down 6 points or less than 0.1 per cent, to 12,383.
The problems began Thursday evening, when Republicans cancelled a plan to vote on their budget plan, which involved raising taxes on Americans earnings more than $1-million (U.S.). The failure to agree on a budget before the holiday break means that the U.S. economy will likely begin to feel the effects of the so-called “fiscal cliff” in the new year, when tax increases and spending cuts begin.
Investors fled to safety, driving the yield on the 10-year U.S. Treasury bond down 5 basis points, to 1.75 per cent – marking the biggest one-day decline in about six weeks.
Meanwhile, the CBOE volatility index, considered a popular “fear gauge,” rose 8.4 per cent to a level of 19.2 – or its highest mark since July. Gold also rose, hitting $1,657 an ounce, up nearly $11.
The stock selloff was widespread, hitting all 10 subindexes within the S&P 500. Energy stocks, financials and technology stocks fell 1.6 per cent each. Consumer staples and discretionary stocks fell 1.5 per cent each.
The declines followed an upbeat reading on U.S. durable goods orders in November. Orders rose 0.7 per cent, beating expectations for a gain of just 0.3 per cent.
However, the University of Michigan confidence index fell to 72.9, from 74.5.
In Canada, the stock market moves were relatively uneventful. Materials rose 0.6 per cent, telecom stocks rose 0.5 per cent and financials were flat. Energy stocks fell less than 0.1 per cent.
Research In Motion Ltd. took a beating though, falling 17.1 per cent after reporting its quarterly finanicial results on Thursday afternoon, when markets had closed. While earnings were better than expected and cash levels rose, observers are concerned about the BlackBerry maker’s ability to drive revenue from service fees charged to wireless carriers.
In Europe, moves were fairly tame. The U.K.’s FTSE 100 fell 0.3 per cent and Germany’s DAX index fell 0.4 per cent.