Fiscal Cliff: T Minus 11 And Counting

Courtesy of John Nyaradi.

Fiscal cliff ticks one day closer with more hope than substance as debate continues

The fiscal cliff debate took an unexpected turn today with two votes in the House of Representatives, one to cut spending in certain areas and the other to raise taxes on incomes over $1 million, the Boehner “Plan B,” while both sides say they continue working together.

The drama and hope raised stock prices today as investors continue to believe that a deal on the fiscal cliff will be made.

Major U.S. Stock and ETF Indexes:

Dow Jones Industrial Average (NYSEARCA:DIA) +0.45%

S&P 500 (NYSEARCA:SPY) +0.55%

Nasdaq 100 (NYSEARCA:QQQ) +0.10%

Russell 2000 (NYSEARCA:IWM) +0.54%

Gold (NYSEARCA:GLD) -1.09%

Oil (NYSEARCA:USO) +0.30%

So the high stakes game of chicken between the White House and Congress continues as the clock ticks.  Tomorrow is the last regular day of this Congressional session so any deal and any vote on the fiscal cliff will have to come between Christmas and New Year’s during the traditional Christmas recess.

Nevertheless, markets remain relatively confident that a deal will be struck.

However, some unease crept into today’s trading as VIX, the CBOE S&P 500 Volatility Index, also known as the “fear index,” rose sharply for the second day as investors and traders bought protection from declining equity prices, and U.S. Treasury bonds posted small gains for the second day.  The VIX index closed with a gain of 1.79% to finish above both its 50 and 200 day moving averages.

VIX ETFs:

iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX): +2.25%

VelocityShares Daily 2X VIX Short-Term ETN (NYSEARCA:TVIX): +4.29%

Velocity Shares Daily Inverse VIX Short-Term ETN (NYSEARCA:XIV): -2.36%

Economic news today was mostly positive with GDP being revised upwards to 3.1%, existing home sales climbing and Philadelphia Fed showing improvement.  However, weekly unemployment claims rose and leading indicators declined to put a mixed view on the current state of the economy. Read “GDP Upsurge Steals Spotlight From Four Economic Reports”

Tomorrow comes consumer spending and income, durable goods, University of Michigan consumer sentiment and the Fed national activity index.

Bottom line: All eyes will be on Congress and the White House tomorrow as the fiscal cliff clock continues to tick.  While the parties express optimism, the rancor over today’s votes in Congress on spending cuts and “Plan B” throw more uncertainty into the situation.  As the Holidays approach, markets still expect Santa but the Grinch could yet steal Christmas.

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