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Wednesday - May 22, 2013

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The S&P 500 slid to its lowest level since late July on Wednesday, driven by uncertainty over U.S. budget negotiations and an escalation of violence in the Middle East.

Industrial shares led the decline, dragged lower in part by a 1 percent spike in crude prices after the Israeli offensive on Gaza.

Wall Street had opened higher after Dow component Cisco Systems reported first-quarter earnings and revenue late Tuesday that beat expectations, driving its stock up 4.8 percent to $17.66. The positive momentum was short-lived.

The Dow Jones industrial average fell 185.23 points, or 1.45 percent, to 12,570.95 at the close on Wednesday. The S&P 500 dropped 19.04 points, or 1.39 percent, to 1,355.49. The Nasdaq composite lost 37.08 points, or 1.29 percent, to 2,846.81.

Both the Dow industrials and the Nasdaq ended at their lowest levels since late June.

President Obama, in his first news conference since re-election, held to his position that marginal tax rates will have to rise to tackle the nation's deficits. With talks over solving the “fiscal cliff” in early stages, investors are reacting to the uncertainty by shedding positions.

“I think we will have a last-minute cliffhanger solution,” said Michael Cheah, portfolio manager at SunAmerica Asset Management in Jersey City, N.J., about a deal to avoid the cliff.

“In the meantime, the market is going to get punched every day.”

Without a deal, a series of mandated tax hikes and spending cuts will start to take effect early next year that could push the economy into a recession.

Taxes on capital gains and dividends could rise as part of the negotiations, pushing investors to sell this year and pay lower taxes on their gains.

“We know Europe's in trouble, China's slowing down ... and now you've got the Middle East flaring up again. It's all hitting at once, and obviously, the market is taking a ‘sell first, ask questions later' approach,” said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati.

The S&P 500 closed below its 200-day moving average for a fifth day in a row, a technical indicator that suggests recent declines are gaining momentum. It was the benchmark S&P 500's lowest close since July 25.

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