Stocks Crushed as Wall Street Girds for Fiscal Cliff Battle

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President Barack Obama spoke at the White House Wednesday and said he was willing to work with House Republicans and Senate Democrats to avoid the $607 billion in automatic tax increases and spending cuts, or "the fiscal cliff," due to hit on Jan. 1.

But he also reiterated a pledge to not preserve Bush-era tax cuts for the wealthiest Americans, sticking by a goal to pull in $1.6 trillion in new revenue through tax hikes on households generating incomes of more than $250,000.

"There is a budget package to be shaped, and I'm confident that parties ... can make that happen. But what I'm not going to do is extend Bush tax cuts for the wealthiest 2% that we can't afford, and according to economists will have the least impact on our economy," Obama said in Wednesday's press conference.

"The two parties have very different visions of what a deal should look like. Failure to reach a compromise in the coming weeks could lead to a recession and bear market for stocks in early 2013," said Frank Fantozzi, president at Planned Financial Services.

The Census Bureau said Wednesday retail sales fell 0.3% in October, more than the 0.2% decline expected by economists, after increasing by an upwardly revised 1.3% in September.

Excluding motor vehicles, retail sales were unchanged; economists had forecast an increase of 0.2%.

"October's U.S. retail sales figures suggest that consumption has lost a bit of momentum ahead of the crucial holiday shopping season," said Paul Dales, senior U.S. economist at Capital Economics . "Even after excluding sales of gasoline, autos and building materials, underlying sales fell by 0.1% month over month ... compares with an average rise of 0.6% month over month over the previous three months."

"It is hard to know how much of this is due to Hurricane Sandy (the Census Bureau said it doesn't know either) and how much may be due to a more general easing in spending growth linked to concerns over the fiscal cliff," Dales continued. "November's sales will be crucial. A bounce-back would point to a temporary Sandy-induced softening, while another soft month would suggest that the threat of a sharp fall in after-tax incomes in the new year is worrying households."

The Bureau of Labor Statistics reported that the producer price index fell 0.2% in October after advancing by 1.1% in September. Economists were expecting levels to increase 0.2%.

Excluding food and energy, the index fell 0.2% after being flat in September. Economists predicted an increase of 0.1%.

Also, the Census Bureau said business inventories increased 0.7% in September, which was more than the 0.5% rise expected by economists and August's 0.6% increase.

Sales were strong with a rise of 1.4% compared with a gain of 0.6% in August.