U.S. stocks fell on Friday, but recovered a little from earlier lows, after Washington failed to agree on a budget before the Christmas break, significantly raising the odds that the United States will face automatic tax increases and spending cuts in the new year. Canadian stocks were little changed.
The S&P 500 closed at 1430.15, down 13.54 points or 0.9 per cent – after being down more than 20 points earlier in the day. The blue-chip Dow Jones industrial average closed at 13,190.84, down 120.88 points or 0.9 per cent. In Canada, the S&P/TSX composite index closed at 12,385.70, down 3.01 points or just about zero per cent.
The problems began Thursday evening, when Republicans cancelled a vote on their budget plan, which involved raising taxes on Americans earning 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 automatic tax increases and spending cuts begin.
Investors fled to safety, driving the yield on the 10-year U.S. Treasury bond down 3.5 basis points, to about 1.76 per cent.
The CBOE volatility index, considered a popular “fear gauge,” subsided from an earlier spike, ending the day relatively unchanged at 17.85. Earlier, it had risen to its highest mark since July. Gold also rose to $1,660.10 an ounce, up nearly $14.20.
The U.S. stock selloff was widespread, hitting all 10 subindexes within the S&P 500. Energy stocks fell 1.2 per cent, and financials and telecom stocks fell 1.1 per cent each. Consumer staples and discretionary stocks fell 1 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 final reading of the University of Michigan confidence index fell to 72.9, from previously 74.5.
In Canada, the stock market moves were relatively uneventful, with even large gold producers failing to rally with gold. Barrick Gold Corp. rose 0.2 per cent.
Research In Motion Ltd. was an exception though, falling 22.2 per cent after reporting its quarterly financial results on Thursday afternoon, when markets had closed. Earnings were better than expected and cash levels rose, but some observers are concerned about the BlackBerry maker’s ability to drive revenue from service fees charged to wireless carriers.
The sharp decline follows what had been a winning streak for RIM, whose share price had risen more than 140 per cent from its low in September to Thursday.
Crude oil fell to $88.66 a barrel, down $1.47. However, Suncor Energy Inc. was barely changed.