By Zachary A. Goldfarb
The Washington Post
Wall Street is finally waking up to the troubling prospect that lawmakers may not reach a deal to avert the “fiscal cliff” deal before the new year, with stocks swinging dramatically Thursday in response to news from Capitol Hill.
Financial markets had been climbing in recent weeks on the expectation that President Barack Obama and the Congress would reach an agreement, adding further momentum to an economy that has been gaining strength.
But with the final days trickling away before the year-end deadline, the markets Thursday experienced their greatest volatility since the summer. It was also the fourth consecutive day of losses on Wall Street.
Investors responded almost instantly to pronouncements from leading lawmakers. Shares plunged in the morning after Senate Majority Leader Harry Reid, D-Nev., predicted a deal would be unlikely by Tuesday and, with investors grasping at a straw of hope, bounced back in the afternoon when House Speaker John Boehner, R-Ohio, said he would call members back to work Sunday.
Analysts and economists said investors were finally recognizing that a typical last-minute Washington deal could prove elusive and instead lawmakers were gearing up for hand-to-hand combat over the weeks to come. If there’s no deal before Tuesday, taxes would rise for most Americans and deep government spending cuts would begin, dealing the economy a painful blow.
“There’s a realization sinking in,” said Vincent Reinhart, chief U.S. economist at Morgan Stanley. “It’s a learning process. People are beginning to think that the cliff is with us for a while longer.”
The Dow Jones industrial average lost 150.5 points Thursday before recouping most of its losses to finish down 18.28, at 13,096. The Standard & Poor’s 500 fell 18 points before rebounding to end down 1.73 points, at 1418.10.