US stocks fell for a third straight day on Wednesday, dragged lower by retail stocks after a report showed consumers spent less in the holiday shopping season than last year. Trading was light, with volume at a mere 4.01 billion shares traded on on the New York Stock Exchange, the Nasdaq and NYSE MKT. This is well below the daily average so far this year of nearly 6.48 billion shares. The day's volume was the lightest full day of trading so far in 2012.
Many senior traders were still on vacation during this holiday-shortened week and major European markets were closed for the day. Many investors said concerns about the "fiscal cliff" kept shoppers away from stores, suggesting markets may struggle to gain any ground until that issue is resolved. The CBOE Volatility Index or VIX, Wall Street's favorite barometer of investor anxiety, rose 4.46 percent, closing above 19 for the first time since November 7.
"With the 'fiscal cliff' hanging over our heads, it was hard to convince people to shop, and now it's hard to convince investors that there's any reason to buy going into year-end," said Rick Fier, director of trading at Conifer Securities in New York, which has about $12 billion in assets under administration.
President Barack Obama is due back in Washington early Thursday for a final effort to negotiate a deal with Congress to bridge a series of tax increases and government spending cuts set to begin next week, the so-called "fiscal cliff" many economists worry could push the U.S. economy into recession if it takes effect.
"People want to show they own names like these, making them prime 'window dressing' candidates," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. "Bank of America keeps going up even though it's overbought and you'd expect a pullback at these levels. No one wanted it when it was under $10 a share, but they want it now." The S&P 500 has fallen 1.5 percent over the past three sessions, the worst three-day decline since mid-November.
During the last five trading days of the year and the first two of next year, it's possible for a "Santa rally" to occur. Since 1928, the S&P 500 has averaged a gain of 1.8% during that period and risen 79% of the time, according to data from PrinceRidge. "While it's unlikely there could be a budget deal at any time, no one wants to get in front of that trade," said Conifer's Fier.
"Investors can easily make up for any gains when there's more action in 2013." Data showed US single-family home prices rose in October, reinforcing the view that the domestic real estate market is improving, as the S&P/Case-Shiller composite index of 20 metropolitan areas gained 0.7% in October on a seasonally adjusted basis. Decliners outnumbered advancers on the New York Stock Exchange by a ratio of about 2 to 1, while on the Nasdaq, more than five stocks fell for every three that rose.