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After The Close - The stock market began the penultimate trading week of the year on a modest downward note, spending the holiday-shortened session largely in the loss column, as hopes for a budget agreement in Washington by the January 2, 2013 deadline appeared to be fading fast.

In truth, there was little enthusiasm to buy equities and, given the dearth of downward pressure on the leading indexes throughout the session, little impetus to sell. Thus, by the closing bell, which sounded at 1:00 PM (EST) today--as investors and traders alike sought to make an early exit before the Christmas observance--the Dow Jones Industrial Average was down by 52 points; the Standard and Poor's 500 Index had given back more than three points; and the tech-heavy NASDAQ was in the red to the tune of eight points. The small-and mid-cap indexes, as represented by the Russell 2000 Composite and the S&P Mid-Cap 400, respectively, also were in the loss column to the tune of four and two points each. In short, it was an uninspiring session, but one that should not alarm the bulls all that much given the troubling political news backdrop.

In this otherwise news-starved day, save for the aforementioned upsetting absence of news out of the nation's Capitol, investors paused in their late-fall buying, rather than engage in any wholesale selling. The year now drawing to a close has been a good one for those who were long the market, notwithstanding some pockets of weakness along the way. In fact, the potentially unsettling news out of Washington has yet to take a major toll on investor sentiment, as underscored by the still-low reading on the VIX volatility index. The reading of just over 18 suggests a good deal of complacency is still in the market, which could well be a bearish sign should the worst fears in the political arena come to be realized. Clearly, most market players think a budget deal will get fashioned before too much longer. And while the nation may not get such a compromise by the January 2nd deadline, the evolving view seems to be that we will get one soon enough thereafter for the undesirable effects of the mandatory tax increases and expenditure reductions to not take a definitive grip on the maturing, but modest and uneven, business expansion. We may soon see whether this optimism is well founded.

As for the trading day, as noted, it was largely to the downside. Specifically, we saw selective weakness in the technology arena today, where losses of some note were booked by a pair of Dow-30 issues, computer manufacturer Hewlett-Packard (HPQ Free HP Stock Report) and software giant Microsoft (MSFT Free Microsoft Stock Report). We also saw further slippage, albeit less dramatically so this time, in the recently battered shares of Herbalife (HLF). Shares of fast-food icon McDonald's (MCD Free McDonald’s Stock Report) also pulled back somewhat. On the other hand, a Dow stock, retail building supplies stalwart Home Depot (HDFree Home Depot Stock Report), managed to buck the aggregate downtrend to post a modest gain. Overall, decliners beat out advancers on the Big Board by better than a 3-to-2 ratio, while the former held sway over the latter by nearly two-to-one on the NASDAQ. It was, to a large extent, an unprepossessing performance by a still somewhat overbought stock market.

Finally, we take this opportunity to wish all of our readers a happy, healthy, and safe holiday, as we await the resumption of equity market trading on Wednesday morning. - Harvey S. Katz, CFA

At the time of this article's writing, the author did not have positions in any of the companies mentioned.

Stocks to Watch from The Survey Corporate news is very light this morning, ahead of an abbreviated Christmas Eve trading session (stock markets close at 1:00 P.M EST). One of the few stocks that is likely to see active trading today is BP PLC (BP), after a federal judge gave final approval to the integrated petroleum company’s $7.8 billion settlement related to the 2010 Gulf of Mexico oil spill. Elsewhere, shares of BlackBerry maker Research in Motion (RIMM) appear poised to extend the sharp declines registered on Friday after the company reported November-period results. That stock is down slightly in pre-market trading. – Matthew E. Spencer

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

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Before The Bell - The stock market ended a generally higher week on a decidedly down note on Friday, as stalled budget talks shook investors enough to push the 30-stock Dow Jones Industrial Average down by 121 points and the NASDAQ lower by 29 points. At the worst levels of the day, the Dow was off close to 190 points.

The impetus for the late-week selloff, as noted, was the uneasy approach of the dreaded fiscal cliff of mandatory tax increases and spending reductions. For a time last week, it seemed as though the White House and the Republicans in Congress were edging closer to a deal. However, Thursday night, House Speaker John Boehner had to pull a decision to vote on a Republican-led effort to submit its own bill, when he could not get the votes needed for passage by his own party. The Democrats already had noted that they would reject this approach.

So now that is where we are, as the January deadline for a deal draws ominously closer by the day. And now, the Congress has gone home for Christmas, although legislators could be called back into session later on this week should a compromise seem even remotely possible. We have assumed all along that a deal would either get done at the eleventh hour or shortly thereafter. We still hold that position, but admit that the odds of such an early 2013 happy outcome appear less than they had been earlier in this soap opera.

Should we go off the cliff, according to Congressional Budget Office projections, we could head into a recession. We think that such an occurrence would not take place immediately, and we could go several months, even a quarter or two, before such an outcome might be unfold. The economy is just too big to turn on a dime, we sense. However, the result is not likely to be good, and Wall Street, which has been assuming an agreement was imminent all along, might well act on its frustrations well before the economy turned downward. But, as noted, we still think the odds favor some sort of accommodation within weeks, or less, of the deadline.

In the meantime, we have other things for market participants to ponder as the final full week of this abbreviated trading session gets under way. For starters, there is the economy, and in the days to come we will get further housing data in the form of the monthly report on new home sales. That metric is due out on Thursday morning. At the same time on Thursday, the Conference Board will weigh in with its results on consumer confidence. That day also will bring data on weekly jobless claims. The week is then set to conclude with Friday's reports on pending home sales and the Chicago-area Purchasing Managers' report on manufacturing activity in an around the Windy City.

All of this should take place on a light trading week, as many market participants are likely to be on vacation. That could make for heightened volatility, which is the last thing that Wall Street needs with the unsettled business in Washington.

Finally, the trading day, which will get under way in less than an hour from now, is likely to open on a weaker note, as the Standard and Poor's 500 Index futures are lower by more than four points and the NASDAQ futures are in the red by more than 11 points. Also, please note that today will be an abbreviated trading session, with the equity market closing at 1:00 PM (EDT) for the upcoming Christmas break. – Harvey S. Katz, CFA

At the time of this article's writing, the author did not have positions in any of the companies mentioned.