You're probably nauseated by the sound of the phrase "fiscal cliff" almost as much as you have been by "green shoots" and "sovereign debt crisis" over the past three years, but the somber truth is that whether or not tax increases occur across the board and a big spending cut hits the defense sector could mean the difference between a multipoint drop in GDP and the loss of up to 2 million jobs.
Today, President Obama stated publicly that he and the Democrat-controlled Senate rejected the Republicans 'fiscal cliff plan and would agree to no plan unless it involved tax increases on upper-income individuals. This has all the makings of a dilemma that'll go into the final hour.
The broad-based S&P 500 (INDEX: ^GSPC ) didn't care for today's lack of a deal and shed 2.41 points (-0.17%) to finish at 1,407.05.
Leading to the downside today was retailer Gap (NYSE: GPS ) and restaurant operator Darden Restaurants (NYSE: DRI ) , which lost 10.3% and 9.6%, respectively.
Gap shares fell after the company disclosed that it'd be making no changes to its dividend payment policy. Many of Gap's peers, and other cash-rich companies in general, have been pushing forward dividend payouts and declaring special dividends in lieu of the pending fiscal cliff, which threatens to tax dividends at a significantly higher rate. In addition, without a fiscal cliff deal, disposable income in the retail sector could take a big hit right when Gap is finally turning the corner after nearly a decade of retail purgatory.
Darden, on the other hand, is falling on some old-fashioned earnings warning news. Darden took a hit when it noted that its promotional menu items weren't stacking up favorably against its peers, and that one-time charges from Hurricane Sandy would hurt its upcoming quarterly figures. Darden's forecast fell about 40% shy of Wall Street's projections, with same-store sales expected to decline at Red Lobster, Olive Garden, and LongHorn Steakhouse. With food prices also being a concern, the restaurant sector looks like a black hole at the moment.
For those of you who see the glass as half full, I give you online streaming company Netflix (Nasdaq: NFLX ) and discount retailer Big Lots (NYSE: BIG ) , which soared 14% and 11.5%.
Netflix shares found their legs and their mouse ears after signing an exclusive movie-licensing deal with Disney (NYSE: DIS ) . The deal will give Netflix exclusive rights to Disney's full array of studios by 2016 but will bring Disney classic movies and direct-to-video titles into the fold by 2013. While this is a positive development for Netflix, it doesn't discount the fact that its DVD business has been going down the tubes and that Amazon.com's (Nasdaq: AMZN ) digital library is gaining traction. Amazon's premier cash position could give it the type of content bargaining power that Netflix simply can't match.
Finally, discount retailer Big Lots soared for a change, following the release of its third-quarter earnings report. Wall Street analysts had been expecting Big Lots to report $1.139 billion in sales and a loss of $0.24 per share. Instead, the company reported sales of $1.134 billion, which was slightly below estimates, but a loss of just $0.10, as same-store sales declined 4.6%. The company also announced the retirement of CEO Steven Fishman. I haven't completely given up on Big Lots yet, as it's in the midst of reducing expenses and making its operations more efficient, but it'll need to take corrective action now before holiday sales really begin to ramp up.
Game-changer or last gasp?
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