Plan B Halts Cliff Talks -- and the Dow's Rally

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Since Republicans and Democrats can't seem to agree on anything right now, yesterday John Boehner announced that he would move to "Plan B," which would extend the Bush-era tax cuts on all Americans except those earning more than $1 million per year. The White House has made clear that it would not agree to such a deal. Most market participants believe that precious time is being wasted and that Washington may not come up with a solution. Additionally, the Fitch rating agency warned the U.S. today that if a solution to the fiscal cliff is not agreed upon, the country may lose its "AAA" rating.

And therefore the Dow Jones Industrial Average (DJINDICES: ^DJI  ) has broken its two-day, 200-point rally and is edging lower. As of 12:50 p.m. EST, the Dow is down a nominal 6.5 points, or 0.05%, to 13,345. Nineteen of the Dow's 30 components are in the red. Three of the biggest losers are General Electric (NYSE: GE  ) , Alcoa (NYSE: AA  ) , and American Express (NYSE: AXP  ) .

Why are they down?
For the second day in a row, shares of General Electric are trading down more than 2%. Midway through yesterday's session, the stock was down 2.1%, and at the midpoint today, shares are down about 2.7%. Yesterday the company reduced 2012 guidance for revenue growth at its industrial business by 2%. It also forecast overall growth of 3% for this year and 0% to 5% for 2013. GE has has struggled to grow over the past few years and would take a major hit if the economy fell off the cliff.

Shares of Alcoa are trading lower by 3% today. The drop comes after ratings agency Moody's put the company on watch yesterday. The aluminum producer may see its credit rating fall to "junk" status if Moody's downgrades the company. Moody's said the reason for the possible downgrade was the decline in the price of aluminum over the past year. The metal is down nearly 22%.

Shares of American Express are down 1% today on news that the White House has approached the company's chief executive officer, Kenneth Chenault, about becoming a member of the President's administration. According to people familiar with the matter, President Obama may want Chenault to become the Treasury secretary. This would be a great move for both Chenault and the country, but it would undeniably hurt American Express and its shareholders.

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For GE, the recent financial crisis struck a blow, but management took advantage of the market's dip to make strategic bets in energy. GE investors need to understand how these bets could drive this company to become the world's infrastructure leader. At the same time, you need to be aware of the threats to GE's portfolio. To help, we're offering comprehensive coverage for investors in a premium report on General Electric, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE, and you'll receive continuing updates as major events unfold during the year. To get started, click here now.

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  • Report this Comment On December 19, 2012, at 1:41 PM, sjk56 wrote:

    Hey, Washington, at this point you must set the pointless arguments aside and do the country a very big favor ... Use what you learned in 3rd grade math and draw a line right down the middle and call it a deal: let America move forward and rejoice, and then, please, go home for the holidays. Thank you very much!

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10/26/2016 4:00 PM
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General Electric CAPS Rating: ****