Monday, November 21, 2011

Stocks plunge as debt talks near collapse


NEW YORK (AP) — The stock market was not exactly surprised that the so-called supercommittee failed to reach a deal to cut the federal deficit. But since summer, investors have bought at the first sign of hope and sold at the first hint of trouble.

So on Monday, they sold big.

The Dow Jones industrial average was down as much as 342 points after the special committee of Congress assigned to come up with $1.2 trillion in deficit cuts over 10 years indicated that there would be no deal.

"They're essentially giving up," said Robert Robis, head of fixed income macro strategies at ING Investment Management.

The supercommittee stalemate is supposed to trigger automatic spending cuts across the government, but there were already hints that Congress would find a way around them. Analysts say that could lead to another downgrade of the U.S. credit rating.

In addition, the breakdown raises questions about how Congress will find a way to extend a 2 percentage point cut in the Social Security tax. Congress passed it for one year, and some lawmakers support extending it because economic growth remains weak.

Each of those measures puts cash in the pockets of Americans, who can spend it and help the economy grow.

It also shows lawmakers may not be able to make progress on anything budget-related in the coming months, said Robert Pavlik, chief market strategist with Banyan Partners LLC in New York.

"It shows that there's a bigger problem at hand, and if they can't work to resolve these relatively small yet meaningful issues, what's going to happen if we get into a situation like Europe is in?" he said. "And we're kind of headed there."

The result was another day of heavy selling in a market that has grown used to big swings. Just before 3 p.m. EST, the Dow was down 254 points at 11,542, a 2.2 percent decline. Learn More...

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