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Why The Dow Fell Off a Cliff

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Yesterday's afternoon rally was apparently short-lived. The Dow Jones Industrial Average (INDEX: ^DJI  ) tumbled 158 points, or 1.2%, today as the market appeared to face the music that is the fiscal cliff. President Obama met with top legislators, but would not offer Republicans a new plan. Revelations of the impasse sent the Dow diving late in the session.

With the House set to reconvene on Sunday, investors will hope for some sort of Hail Mary pass to avert the fiscal cliff by year's end on Monday. Without a bill, income taxes will go up for all Americans starting Jan. 1 and spending cuts will kick in on government programs. The CBOE Volatility Index (INDEX: ^VIX  ) , Wall Street's volatility measure, or "fear factor," jumped 17% to $22.72 today, indicating a nervous market.

Elsewhere, macroeconomic reports continued to portend an improving economy as the Chicago Purchasing Managers Index and November pending home sales topped expectations.

Every Dow component fell today, with Hewlett-Packard (NYSE: HPQ  ) leading the way with a 2.6% drop. The Justice Department announced it would be investigating the company's Autonomy unit, which forced HP to take a $8.8 billion writedown following its acquisition of the software maker. HP had accused the target company of fraud among other violations, and shares of the PC maker have been particularly volatile since news broke of the write-off.

Oil stocks also took a hit as ExxonMobil (NYSE: XOM  ) and Chevron (NYSE: CVX  ) fell 2% and 1.9%, respectively. Though oil futures only fell slightly, the oil majors seemed to be affected by EPA chief Lisa Jackson's decision to step down in January. While Jackson has been tough on the oil industry by negotiating higher fuel standards for car makers, a new chief could be tougher, and the market hates uncertainty. Stricter regulations on fracking could also have an impact on such companies as Exxon, which is the country's no. 1 natural gas producer.

Monday should be a big trading day as political heads will hustle to get a deal done, and investors have one final day to sell before they face what could be a higher capital gains rate in 2013.

Get a head-start on next year with a look at our brand new special free report on our "Top Stock for 2013." It's an energy services company that should see big opportunities with the expansion of oil and gas fracking over the coming years. This pick comes straight from our Chief Investment Officer, and you can get a copy of his report right now at no cost. All you have to do is click right here.

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