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Obama, GOP Crush Stocks on Path to Fiscal Cliff Showdown

Tickers in this article: AXP CVX HPQ XOM

The S&P 500 fell nearly 16 points, or 1.1%, and closed just above the 14,000 level. The Nasdaq dropped 25.6 points, or 0.9%, to 2,960.31.

Shares of all companies in the 30-member Dow fell, with Hewlett-Packard(HPQ) declining the most, at 2.56%. Chevron(CVX) and Exxon Mobil (XOM) were the only other Dow stocks to drop more about 2%. American Express (AXP) , the only rising stock in midday trading, was down slightly by Friday's close.

Lawmakers weren't the only people to change their script on the looming fiscal cliff.

After downgrading the U.S. government's debt rating amid the messy August 2011 debt-limit negotiations, ratings agency Standard & Poor's said on Friday it doesn't expect a fiscal-cliff stalemate to affect its rating of the government's debt. Meanwhile, the prospect of a standoff between Obama and congressional Republicans doesn't appear to raise S&P's alarm that a last-minute deal could contain short-term measures that don't resolve long-term budget issues.

"Standard & Poor's Ratings Services does not expect negotiations over the fiscal cliff to have an impact on its 'AA+/A-1+' ratings on the U.S. federal government," the rating agency said in a press release late Friday.

Still, an 11th-hour agreement that waters down tax hikes or budget cuts would appear to reaffirm S&P's negative outlook on the government's debt rating.

"Our existing negative outlook on the U.S. rating speaks to the risk of a deliberate further loosening of fiscal policy, for example through a material weakening of the Budget Control Act of 2011 without compensating measures," S&P said Friday.

Peter Tchir, head of TF Market Advisors, said he remains "stubbornly optimistic that the politicians do enough over the weekend for a bounce" in stocks.

Lawmakers have three days to broker a deal with lawmakers before taxes automatically rise and spending cuts take hold, a combination that could push the economy into a recession, according to Congressional Budget Office calculations.

On Thursday, fiscal-cliff negotiations also moved stocks sharply. Markets fell after Reid said Republicans are stalling in finding a solution. "I don't know time-wise how it can happen now," he said at the time.

The S&P 500 rallied late on Thursday after Rep. Eric Cantor (R., Va.) said on Twitter the House of Representatives will meet on Sunday, Dec. 30, as Congress works to broker a last-minute deal.

"The House may be in session through Wednesday, Jan. 2," he wrote in a follow-up post to the social network.

In a Senate chamber speech late on Thursday, McConnell said President Obama had spoken to the Senate's GOP leadership about the prospect of reviving talks. While McConnell expressed skepticism on the timing of Obama's outreach, he added, "We might finally start talking. ... Hopefully there is still time for a deal of some kind."