Market Optimism Falls Off a Cliff


Fiscal-cliff blues are taking their toll on stocks, and the Dow Jones Industrial Average and the broader S&P 500 are down 0.9% and 1.1%, respectively, as of 10:10 a.m. EST.

Fiscal-cliff watch
Handicapping politicians is a thankless task. President Obama and House Speaker John Boehner had made substantial progress over the weekend and on Monday toward a legislative package that would avoid the fiscal cliff, fueling investor optimism and a mini-rally in stocks on Monday and Tuesday. I, for one, thought a pre-New-Year agreement was in sight. Unfortunately, Boehner went off on a tangent to try to pressure Obama -- a move that has now proven detrimental to negotiations and politically costly for Boehner himself.

President Obama needn't have worried about vetoing Boehner's "plan B," a pared-down plan to eliminate tax increases on all but the top earners; Republican congressman took care of the job for him. In an embarrassing setback, the Speaker was forced to announce there would no vote on plan B in the House, as he had been unable to secure the votes for it within his own party. This calls the entire negotiation process into question, as Boehner's leadership has been weakened.

As a result, investors' beginning-of-the-week optimism is fading. The effect on stock prices is obvious this morning.

The micro view
has begun testing paid messages that will enable users to contact people they aren't connected with. It's no secret that the social-networking company is still trying to define its business model beyond banner ads, but this latest initiative suggests that it is somewhat out of touch with its users. Professional-networking site LinkedIn already charges users for the same functionality, but the rationale for that is clear and accepted in the context of a job hunt. Facebook users aren't in "work mode" when they're using the social network, and selling the ability to contact them to strangers is unlikely to create much goodwill.

My Foolish colleague Evan Niu agrees that "there are some kinks in its business that [Facebook] needs to work out." However, he believes the company will be worth your investing dollars soon. Click here to receive his premium report, which includes updates to alert investors once he thinks the "buy" case is clear.

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Alex Dumortier, CFA has no positions in the stocks mentioned above; you can follow him @longrunreturns. The Motley Fool owns shares of Facebook and LinkedIn and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published