By Angela Moon
NEW YORK Dec 16 The last two weeks of December
are traditionally quiet for stocks, but traders accustomed to a
bit of time off are staying close to their mobile devices,
thanks to the "fiscal cliff."
Last-minute negotiations in Washington on the so-called
fiscal cliff - nearly $600 billion of tax increases and spending
cuts set to take effect in January that could cause a sharp
slowdown in growth or even a recession - are keeping some
traders and analysts from taking Christmas holidays because any
deal could have a big impact on markets.
"A lot of firms are saying to their trading desks, 'You can
take days off for Christmas, but you are on standby to come in,
if anything happens.' This is certainly different from previous
years, especially around this time of the year, when things are
supposed to be slowing down," said J.J. Kinahan, chief
derivatives strategist at TD Ameritrade in Chicago.
This week "is going to be a Capitol Hill-driven market."
With talks between President Barack Obama and House Speaker
John Boehner at an apparent standstill, it was increasingly
likely that Washington would not come up with a deal before Jan.
Gordon Charlop, managing director at Rosenblatt Securities
in New York, will also be on standby for the holiday season.
"It's a 'Look, guys, let's just rotate and be sensible" type
of situation going on," Charlop said.
"We are hopeful there is some resolution down there, but it
seems to me they continue to walk that political tightrope ...
rather than coming up with something."
Despite concerns that the deadline will pass without a deal,
the S&P 500 has held its ground with a 12.4 percent gain for the
year. For the past week, though, the S&P 500 slid 0.3 percent.
BEWARE OF THE WITCH
This Friday will mark the last so-called "quadruple
witching" day of the year, when contracts for stock options,
single stock futures, stock index options and stock index
futures all expire. This could make trading more volatile.
"We could see some heavy selling as there is going to be a
lot of re-establishing of positions, reallocation of assets
before the year-end," Kinahan said.
Higher tax rates on capital gains and dividends are part of
the automatic tax increases that will go into effect next year
if Congress and the White House cannot come up with a solution
to avert the fiscal cliff. That possibility could give investors
an incentive to unload certain stocks in some tax-related
selling by Dec. 31.
Some market participants said tax-related selling may be
behind the weaker trend in the stock price of market leader
Apple. Apple's stock has lost a quarter of its value
since it hit a lifetime high of $705.07 on Sept. 21.
On Friday, the stock fell 3.8 percent to $509.79, its lowest
close since Feb. 17, after the iPhone 5 got a chilly reception
at its debut in China and two analysts cut shipment forecasts.
But the stock is still up nearly 26 percent for the year.
"If you owned Apple for a long time, you should be thinking
about reallocation as there will be changes in taxes and other
regulations next year, although we don't really know which rules
to play by yet," Kinahan said.
But one indicator of the market's reduced concern about the
fiscal cliff compared with a few weeks ago, is the defense
sector, which will be hit hard if the spending cuts take effect.
The PHLX Defense Sector Index is up nearly 13 percent for
the year, and sits just a few points from its 2012 high.
(Wall St Week Ahead runs every Sunday. Questions or comments
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