NEW YORK (AP) — Wall Street is peering over the “fiscal cliff” and feeling vertigo.
The stock market finished one of the worst weeks of the year Friday, pushing Washington to work out a deal to avoid the tax increases and government spending cuts set to take effect Jan. 1.
Remarks by re-elected President Barack Obama and House Speaker John Boehner on the looming deadline didn’t do much to cheer the market. Stocks finished barely higher for the day.
Chris Bertelsen, the chief investment officer at Global Financial Private Capital of Sarasota, Fla., said he expects Congress and Obama to reach a compromise to avoid the fiscal cliff.
“But it could well be the conventional U.S. political way of doing it — the last minute type of stuff — in which case the markets will be haunted by it until the point it happens,” he said.
For the week, the Dow Jones industrial average fell 277 points, or 2.1 percent. The Dow has fallen 795 points since hitting its closing high for the year, 13,610 on Oct. 5.
The S&P fell 2.3 percent during the week, its worst weekly decline since June 1, when investor concern about the debt crisis in Europe was rising.
Stocks began their slide Wednesday in the biggest sell-off of the year after voters returned Obama, a Democratic Senate and a Republican House to power. Investors immediately turned to worrying about the cliff.
If the tax increases and spending cuts take full effect, the U.S. will likely fall back into recession, the Congressional Budget Office said Thursday.
Boehner said Friday that he remains unwilling to raise tax rates on upper-income earners. But he left open the possibility of balancing spending cuts with revenue increases that come from some revisions to the tax code.
Stocks managed a small rally. The Dow was up about 30 points when Boehner started talking and about 80 points shortly after.
Then Obama said he would not accept any approach to federal deficit reduction that doesn’t ask the wealthy to pay more in taxes. A spokesman later said Obama would veto legislation extending tax cuts for families making $250,000 or more.
The Dow began sliding just before Obama spoke, at 1 p.m., and had lost its gain for the day by 1:30.
As they head into talks with Obama next week on the fiscal cliff, congressional leaders no doubt remember what can happen on Wall Street when investors are worried and watching Washington’s every move.
In September 2008, at the depths of the financial crisis, the House defeated a $700 billion emergency rescue of the nation’s financial system, sending the Dow plunging 777 points.
The Dow also slid for eight straight days in the summer of 2011 as politicians squabbled over a deal to raise the nation’s federal borrowing limit before eventually reaching an accord Aug. 1.
The index slipped as much as 634 points between July 27 as the political bickering intensified and Aug. 5, when S&P downgraded the national credit rating, citing the weakening of U.S. political institutions as a reason for the cut.
On Friday, stocks pared losses as investors took encouragement about the economy from a report by the University of Michigan showing that consumer confidence rose more than expected in November.
The Dow finished up 4.07 points at 12,815.39. The S&P advanced 2.34 points to 1,379.85, and the Nasdaq composite gained 9.29 points to 2,904.87.
Stocks are well below the highs of this year. The S&P is down 5.5 percent from its peak of 1,465 in September, when the Federal Reserve announced a third round of a bond-buying program intended to hold down borrowing costs.
The dimming outlook for Europe also weighed on markets this week. The European Commission, the executive arm of the European Union, cut its forecast for economic growth in the region Wednesday.
The yield on the 10-year Treasury note was little changed at 1.62 percent compared with 1.61 percent late Thursday. The yield on the benchmark government security has tumbled from as much as 1.84 percent Sept. 17, as investor aversion to risk has grown. Treasury yields fall as investor demand pushes up prices.
By Steve Rothwell, AP business writer