Today: Wall Street takes a hit from politicians' inability to find "fiscal cliff" compromise, which endangers improving economy; Facebook introduces new messaging app, Instagram rolls back changes.
As 'fiscal cliff' talks turn sour, investors punish stocks
With hopes for a compromise on the "fiscal cliff" -- a series of tax increases and spending cuts scheduled to take place as calendars turn from 2012 to 2013 -- quickly diminishing, stocks took a dive Friday, knocking back increases seen earlier in the week.
After the Republican Speaker of the House, Rep. John Boehner, failed in his quest to bring his "Plan B," which would have increased taxes on those earnings more than $1 million a year, to the House floor, President Barack Obama told the media Friday that he hopes the two sides can find an agreement next week, after taking time off for Christmas.
While Obama told the nation "I still think we can get it done," Boehner said earlier in the day, "How we get there, God only knows."
Investors were not optimistic.
"With such a staunch group in the House, it looks as if the odds of going into 2013 without a deal have increased," Stifel Nicolaus market strategist Kevin Caron told Bloomberg News. "I don't know whether we're going to reach a deal, when we're going to reach a deal, if there's going to be a deal. It's just a complete wild card at this point."
A late rebound kept all three major U.S. stock indexes at losses between 0.9 percent and 1 percent on the day, but the uncertainty could spell more doom when Wall Street kicks back into gear Monday.
"There's a real lack of clarity about what will happen, and markets hate that," Morgan Creek managing director of investments Mike Hennessy told Reuters.
Still, the fact that indexes did not take a bigger dive -- all three major indexes still gained on the week, thanks to increases Monday and Tuesday, when a deal seemed closer -- was a positive for Mark Lehmann, president of San Francisco-based JMP Securities.
"You could have easily woken up today and seen the market down 300 or 400 points, and everyone would have said, 'That's telling you this is really dire,'" Lehmann told Reuters. "I think if you get into mid-January and (the talks) keep going like this, you get worried, but I don't think we're going to get there."
The concern is for the U.S. economy, which economists say could slide back into recession if Americans' taxes increase while entitlements are cut, a double whammy that could be felt even more starkly in California. The downfall would come at a hard time for the United States, which has been climbing back from the Great Recession, as well as the Bay Area, which has been showing signs of a resurging job market.
"We are assuming that the fiscal cliff does get resolved, and if it does, we should see strong consumer spending and momentum for the economy in 2013," IHS Global Insight senior economist Chris G. Christopher Jr told the Associated Press. "But if we go down the fiscal cliff, then the first quarter will not be pretty."
Facebook continues week of big news, stock takes big tumble
A newsworthy week for Facebook continued, as the Menlo Park social network announced a new feature for users and its photo-sharing app, Instagram, rolled back its privacy changes that created an uproar earlier in the week.
Facebook announced Friday that it would roll out a new messaging service similar to the startup Snapchat, which allows users to set a time that their message can expire, typically a few seconds. While some have derided the move as an opportunity for "sexting" with no evidence, it shows Facebook's willingness to try new opportunities to push further into the mobile space.
Facebook's most expensive push into mobile was Instagram, the San Francisco photo-sharing app that it agreed to pay $1 billion for earlier this year. The service's users openly rebelled against it earlier this week, however, because of new terms of service seen as too obtrusive, so the San Francisco company announced Thursday that it would roll its regulations back to an earlier version, though that still didn't please everyone.
"Going forward, rather than obtain permission from you to introduce possible advertising products we have not yet developed, we are going to take the time to complete our plans, and then come back to our users and explain how we would like for our advertising business to work," Instagram co-founder and CEO Kevin Systrom wrote in a blog post Friday.
Facebook also announced this week that it would begin charging users $1 for the privilege of sending messages to Facebook members with whom they are not connected, following a report that Facebook would begin pushing video ads that play automatically into users' news feeds. While both of those moves would increase revenue, they could endanger the company's relationship with users, as seen in reactions to the messaging move. h
Investors sent Facebook stock down 4 percent Friday, when it closed at $26.26, the lowest closing price for the company in almost a month.
Silicon Valley tech stocks
Up: Pandora, Sunpower
The tech-heavy Nasdaq composite index: Down 29.38, or 0.96 percent, to 3,021.01.
The blue chip Dow Jones industrial average: Down 120.88, or 0.91 percent, to 13,190.84.
And the widely watched Standard & Poor's 500 index: Down 13.54, or 0.94 percent, to 1,430.15.
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.