Ex­perts say deal cru­cial by early ’13

Mar­ket

Austin American-Statesman - - BUSINESS - Con­tin­ued from B

more the mar­ket is say­ing, ‘Just give us some­thing.’ ”

Sal Arnuk, a part­ner at Themis Trad­ing, sug­gested that the sharp drop in stocks might have been an over­re­ac­tion. The Dow was down as much as 189 points, and be­fore the mar­ket opened, stock fu­tures sug­gested a de­cline of 200 points or more.

“It’s not a sur­prise that they weren’t able to come to an agree­ment,” he said. I don’t think most of Wall Street an­tic­i­pated that they would come to an agree­ment.”

Other mar­kets reg­is­tered their con­cern, but the re­ac­tion was not ex­treme. The yield on the bench­mark 10-year U.S. Trea­sury note fell 0.04 per­cent­age point to 1.76 per­cent.

The price of gold, which some in­vestors buy when fear over­takes the mar­ket, climbed, but only by 0.9 per­cent. Gold rose $14.20 to $1,660.10 an ounce.

If the full “fis­cal cliff” takes ef­fect, econ­o­mists say it could drag the United States into re­ces­sion next year. The im­pact would be grad­ual, though, and a re­ces­sion is not a sure thing.

Most peo­ple would re­ceive only slightly less money in each pay­check. And the tax in­creases and spend­ing cuts could be retroac­tively re­pealed if a deal comes to­gether af­ter Jan. 1.

If bud­get talks dragged on, many busi­nesses might put off in­vest­ment or hir­ing, and con­sumer spend­ing could suf­fer. That’s why most econ­o­mists say it would be cru­cial to reach a deal within roughly the first two months of 2013.

“Be­lieve you me,” Krosby said, “if you think that there is a re­ces­sion in the off­ing you are go­ing to see this mar­ket sell off. It’s sell off first, ask ques­tions later.”

It was not the first time that Wall Street wor­ried about the “fis­cal cliff” talks.

On the day af­ter the elec­tion, when vot­ers re­turned di­vided government to power, the Dow dropped 312 points. On Nov. 14, when Pres­i­dent Barack Obama in­sisted on higher tax rates for the wealthy, the Dow dropped 185 points.

The sharp drop in stocks Fri­day was rem­i­nis­cent of, although much smaller in scale than, what hap­pened Sept. 29, 2008, dur­ing the fi­nan­cial cri­sis. The House de­feated a pro­posed $700 bil­lion bailout of the U.S. fi­nan­cial in­dus­try, and the Dow plunged 777 points, its worst one-day de­cline. Four days later, the House, shaken by Wall Street’s re­ac­tion, passed a mod­i­fied bill.

Stocks closed sharply lower Fri­day in Asia af­ter House Repub­li­cans can­celed their vote. The Nikkei in­dex in Ja­pan fell al­most 1 per­cent, and Hong Kong’s Hang Seng In­dex dropped 0.7 per­cent. Stocks were also lower in Europe.

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