Stock futures point to flat open amid "cliff" uncertainty
By Ryan Vlastelica | December 21, 2012 1:14 AM EST
Stock futures pointed to a flat open Thursday amid uncertainty over U.S. fiscal talks as President Barack Obama threatened to veto a controversial Republican plan, suggesting a deal wouldn't come as soon as many investors had hoped.
Futures barely reacted to a strong final read on U.S. third-quarter gross domestic product growth, suggesting talks to avert the "fiscal cliff," steep tax hikes and spending cuts due to take effect in 2013, remain the primary focus for markets.
Republican Speaker of the House John Boehner said Wednesday his chamber would pass a proposal that spares many wealthy Americans from tax hikes needed to balance the budget. Obama has threatened to veto the plan if it passes, while some Republicans oppose any deal featuring tax increases.
Equities have been volatile this week, though they notched strong gains Monday and Tuesday as offers from Obama and Boehner indicated progress was being made in budget discussions.
That rally ended Wednesday as a rise in tensions in the talks threatened to unravel recent progress.
"The closer we get to the end of the year without a deal, the more optimism is going to evaporate," said Todd Schoenberger, managing partner at LandColt Capital in New York. "Volatility is going to be extreme until there's a deal, and the probability of being caught on the downside is much greater than being on the upside."
While investors have hoped for an agreement soon between policy makers over the fiscal cliff, this seems unlikely as wrangling continues over the details.
S&P 500 futures rose 1.2 point and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 9 point and Nasdaq 100 futures rose 5.75 points.
Stocks rallied recently on signs of progress in the negotiations, led by banking and energy shares, which tend to outperform in times of economic expansion. On signs of complications, however, many have turned to hedging their bets through options and exchange-traded funds.
The U.S. economy grew 3.1 percent in the third quarter, faster than previously estimated, while the number of Americans filing new claims for jobless benefits rose more than expected in the latest week.
"It is great to see this kind of growth, but investors know it could all disappear if there's no deal on the cliff," Schoenberger said. "Macro data may be on the back burner for a while."
November existing home sales are due at 10:00 a.m. and are seen rising 1.3 percent, compared with 2.1 percent in October, while the Philadelphia Federal Reserve Bank's December business activity survey is forecast to come in at -3.0, compared with -10.7 in November.
(Editing by Bernadette Baum)