Fiscal-Cliff Fears, Factory Data Pressure Stocks Lower

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It was another back-and-forth session for the Dow Jones Industrial Average (DJI) , though the bears eventually prevailed. Stocks erased early gains on signs of contracting U.S. manufacturing activity, and House Republicans' budget proposal failed to spark optimism about bipartisan deal-making. With the clock ticking, the looming fiscal cliff remained in focus, and the major indexes ended just off session lows.

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The Dow Jones Industrial Average (DJIA) started off strong, but blazed a path lower as the session progressed. By the close, the blue-chip barometer shed nearly 60 points, or 0.5%, ending its two-day streak atop the 13,000 level. Just eight of the Dow's 30 components avoided the red, with Cisco Systems' ( CSCO ) 0.6% gain leading the seven advancers, and Alcoa ( AA ) finishing flat. Meanwhile, DuPont ( DD ) paced the bearish majority with a 1.7% drop.

The S&P 500 Index (SPX) also turned tail in the first hour of trading, surrendering 6.7 points, or 0.5%, by the close. Likewise, the Nasdaq Composite (COMP) ended near a session low, giving up 8 points, or 0.3%, but maintaining its perch atop the 3,000 level.

The CBOE Market Volatility Index (VIX) , on the other hand, added 4.8% to end north of 16 for the first time since Nov. 16.

CLOSING SUMMARY - INDICES

CLOSING SUMMARY - NYSE AND NASDAQ

A Trader's Take

"The Institute for Supply Management's (ISM) sub-50 manufacturing number came out at 10:00 AM, and that sparked the selling," said Sapp. "Before that the market was up about 0.4%, but we eventually reversed course to finish 0.5% lower. However, even though the market is weak, there are pockets of strength -- you can still pick stocks. Technology was flat on the day, but a few names were up pretty significantly."

Economic and Earnings News

The ISM manufacturing index dropped to 49.5 in November, down from October's reading of 51.7. This move below 50 indicates a shift from expansion to contraction in U.S. factory activity. The magnitude of the decline caught economists off-guard, as the consensus estimate called for a milder pullback to 51.0.

Construction spending rose 1.4% in October to a seasonally adjusted annual pace of $872.14 billion, reported the Commerce Department, besting the average Wall Street estimate for a gain of 0.5%. This marked the biggest monthly jump in construction spending in just over three years.

STOCKS - EARNINGS

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In the Options Pits :

STOCKS - MOVERS

STOCKS - NOTABLE CALL ACTIVITY

STOCKS - NOTABLE PUT ACTIVITY

Commodities

Crude futures extended their winning streak to a third straight session, as an ailing greenback translated into a boon for dollar-denominated commodities. Furthermore, solid manufacturing data out of China helped to offset lackluster factory activity at home. By the close, January-dated oil tacked on 18 cents, or 0.2%, to finish at $89.09 per barrel.

Dollar weakness also lifted gold futures, as did "safe haven" demand amid fiscal-cliff uncertainty. By the time the dust settled, gold for February delivery advanced $8.40, or 0.5%, to end at $1,721.10 an ounce.

SCHAEFFER'S MARKET POSTURE

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This article appears in: Investing , Options

Referenced Stocks: AA , CSCO , DD , INTC , VZ

Schaeffer's Investment Research

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