Stock Market Today: Gauging the Fiscal Cliff Effect

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U.S. markets were mixed and relatively quiet Monday as investors digested the weekend news that fiscal cliff talks had failed to lead to a deal – possibly even derailing earlier progress.

Just before 2 p.m. on Wall Street, the Dow Jones Industrial Average was down 26 points, and the Standard & Poor's 500 Index and Nasdaq were both treading slightly lower.

On the economic calendar to kick-off the busy week were reports on October construction spending, November manufacturing and auto sales.

What's Moving the Stock Market Today

  • Manufacturing Data

Data released Monday from the Institute for Supply Management revealed the U.S. manufacturing sector dipped back into contraction in November. Businesses reined in spending and curbed expansion projects while they anxiously await the looming blows from the fiscal cliff.

The ISM's manufacturing purchasers' index fell unexpectedly last month to 49.5 from 51.7 in October, marking the lowest reading since July 2009. Forecasts were for a reading of 51.5. A reading above 50 suggests expanding activity. Monday's reports gave no such hints.

According to economists surveyed by Dow Jones Newswire, demand has slowed in the second half of 2012. The culprit is the imminent fiscal cliff.

Bradley Holcomb, who oversees the ISM survey, told The Wall Street Journal, "People are backing off from making any moves until [the fiscal cliff] is cleared up."

Surprisingly, Hurricane Sandy was barely mentioned as a reason for the retrenchment, but analysts say impacts from the Halloween monster storm are likely to haunt reports in the coming months.

  • Construction Spending

On the flip side, construction spending soared nearly three times more than was projected in October.

Rising a robust 1.4%, it was the largest gain since May, and came on the heels of a paltry 0.5% advance in September, according to data from the Commerce Department. The gain handily beat forecast of a measly 0.5%.

Home construction leapt to the highest level since November 2008, helped by rising property values and historic low borrowing costs.

But the healthy gains may be short lived.

The fiscal cliff tax increases and across-the-board spending cuts are sure to hamper future gains as government and businesses postpone construction projects.

  • Auto Sales

Also avoiding fiscal cliff effects was strength from the auto industry.

Chrysler, Ford, General Motors and Toyota all saw sales climb in November with gains of 14%, 6%, 3.4% and 17.2% respectfully, as residents in the Northeast raced to replace vehicles damaged in Hurricane Sandy.

Sales are expected to remain vigorous for the next few months as the after effects of Sandy linger. But the growing uncertainty over the fiscal cliff has the car makers worried that the outcome will curtail sales down the road.

Stock Market This Week

Market participants are gearing up for a busy week.

U.S. President Barack Obama on Tuesday will meet with state governors at the White House, and the central banks of Australia and Canada will meet to review monetary policy.

On Wednesday President Obama addresses the Business Roundtable, where the likely topic will be the fiscal cliff. Also look for reports on October factory orders and Q3 productivity.

The European Central Bank and the Bank of England on Thursday will announce changes, if any, to interest rates. Plus, the Joint Economic Committee of Congress looks into how to best protect the middle class from the fiscal cliff.

On Friday we'll get the all-important jobs numbers for November. The unhealthy unemployment level is forecast to edge up to 8.0%.

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