Why the Dow's Nosediving on Fiscal Cliff Fears

The holiday cheer sure didn't last long on the Dow Jones Industrial Average (DJINDICES: ^DJI  ) . Wall Street's turned right back into full-blown fiscal cliff hysteria as the Dow's fallen 140 points, or 1.1%, as of 2:15 p.m. EST -- sending the index below the 13,000 mark. Every stock on the index is in the red, and more than half of its 30 members have recorded losses of more than 1% so far. From industrials to finance, no sector's safe in this afternoon's sell-off.

Political drama aplenty
Select politicians have already admitted that negotiating a fiscal cliff solution before Jan. 1 looks like a pipe dream by this point. With just a few days left before the new year, the parties on Capitol Hill are still split between tax hikes and spending cuts. In what's become a trend, however, Wall Street has reacted strongly to the fading hopes of a deal -- the CBOE Volatility Index (VOLATILITYINDICES: ^VIX  ) , or "fear indicator," has shot up more than 4% today, despite the likelihood that any fiscal cliff-related recession will phase in over time, rather than falling all at once on Jan. 1.

Financials are taking the worst beating on the Dow. Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) lead all Dow laggards lower, with shares losing 2.2% apiece. Investors in these two banks are ignoring the strong housing data that came out today, but both stocks have still managed to post impressive returns over the course of 2012.

Industrials are also feeling the hit, with companies in this sector heavily tied to the performance of the economy. Alcoa (NYSE: AA  ) ranks among the worst Dow losers of the day, with shares falling 2.1%, while General Electric (NYSE: GE  ) and Caterpillar (NYSE: CAT  ) have also fallen, down 1.7% and 1.2%, respectively. With the fiscal cliff projected to inflict a recession for the first two or three quarters in 2013, investors in these industrial powers could see a rough start to next year.

Several Dow stocks have managed to keep losses light, however. Wal-Mart (NYSE: WMT  ) sits highest on the Dow with shares down just 0.1% despite the recent report of 2012's lackluster holiday retail season. While the big-box chain may be vulnerable to the fiscal cliff as well, it's proven to be a strong pick for long-term investors. In 2012 alone, Wal-Mart's stock is up more than 12%.

Among other stocks keeping losses down, Microsoft (NASDAQ: MSFT  ) has only lost 0.3% on the day, while Johnson & Johnson (NYSE: JNJ  ) has kept losses to 0.4%.

Bank of America's taking a beating today, but despite all the fiscal cliff rhetoric, this stock has soared for investors in 2012. Is this the long-term pick you've been looking for, or is the fear justified? To learn more about the most-talked-about bank out there, check out our in-depth company report on Bank of America. The report details Bank of America's prospects, including three reasons to buy and three reasons to sell. Just click here to get access.


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