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Fiscal Cliff Worries Continue To Weigh On Wall Street - U.S. Commentary


Stocks moved mostly lower over the course of the trading day on Friday, as worries about the fiscal cliff once again overshadowed upbeat economic data. A notable drop by shares of Apple (AAPL) also weighed on the markets.

The major averages saw some volatility in the final hour of trading but still ended the day firmly in negative territory. The Dow slipped 35.71 points or 0.3 percent to 13,135.01, the Nasdaq fell 20.83 points or 0.7 percent to 2,971.33 and the S&P 500 slid 5.87 points or 0.4 percent to 1,413.58.

With the losses on the day, the major averages all moved modestly lower for the week. The Dow and the Nasdaq both edged down by 0.2 percent, while the S&P 500 dipped 0.3 percent.

The weakness on Wall Street came as lawmakers in Washington continue to struggle to reach an agreement to avoid the looming fiscal cliff.

While President Barack Obama and House Speaker John Boehner met at the White House Thursday evening, there were no indications of progress on narrowing the gap between their opposing budget proposals.

A joint statement described the 50-minute meeting as "frank" and said "the lines of communication remain open."

As a result of the focus on Washington, traders shrugged off the latest batch of economic data, including a report from the Federal Reserve showing a notable rebound in U.S. industrial production.

The report said industrial production surged up by 1.1 percent in November after falling by a downwardly revised 0.7 percent in October. Economists had expected production to increase by 0.3 percent compared to the 0.4 percent drop originally reported for the previous month.

The Federal Reserve said the rebound in production reflected a recovery in production for industries that were negatively affected by Hurricane Sandy.

Meanwhile, the Labor Department released a separate report showing a bigger than expected drop in U.S. consumer prices in the month of November.

As mentioned above, Apple posted a notable loss on the day, contributing to the drop by the tech-heavy Nasdaq. The iPad and iPhone maker fell 3.8 percent to a nearly ten-month closing low.

Sector News

Health insurance stocks saw substantial weakness on the day, dragging the Morgan Stanley Healthcare Payor Index down by 2.4 percent. With the loss, the index pulled back further off the seven-month closing high it set on Wednesday.

Centene (CNC) helped to lead the health insurance sector lower, tumbling by 9.5 percent after slashing its full-year guidance.

Notable weakness was also visible among oil service stocks, as reflected by the 1.2 percent drop by the Philadelphia Oil Service Index. Schlumberger (SLB) posted a steep loss after warning that weaker than expected drilling activity will impact its fourth quarter results.

While electronic storage stocks also came under pressure, steel stocks moved sharply higher on the day on the heels of upbeat Chinese manufacturing data. The NYSE Arca Steel Index surged up by 2.3 percent to its best closing level in almost three months.

Networking stocks also saw strength on the day, driving the NYSE Arca Networking Index up by 1.5 percent. Alcatel-Lucent (ALU) posted a standout gain after securing a $2.1 billion financing package.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Friday. While Japan's Nikkei 225 Index edged down by 0.1 percent, Hong Kong's Hang Seng Index advanced by 0.7 percent.

The major European markets also turned mixed on the day. The U.K.'s FTSE 100 Index dipped 0.1 percent, while the French CAC 40 Index closed nearly flat and the German DAX Index rose 0.2 percent

In the bond market, treasuries regained some ground following recent weakness. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2 basis points to 1.708 percent after ending the previous session at a one-month closing high.

Looking Ahead

Developments in Washington are likely to remain in focus next week as the year-end deadline to avoid the fiscal cliff draws ever closer.

Trading could also be impacted by the release of some key U.S. economic data, including reports on housing starts, existing home sales, and durable goods orders.

by RTTNews Staff Writer

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