fiscal cliff fight can KO December rally ?

On Friday, President Barack Obama accused a "handful of Republicans" in the U.S. House of Representatives of holding up legislation to extend tax cuts for middle-class Americans in order to try to preserve them for the wealthy. Speaking shortly after the president, House Speaker John Boehner, an Ohio Republican, said: "There is a stalemate; let's not kid ourselves." December is historically a strong month for markets. The S&P 500 has risen 16 times in the past 20 years during the month. But the market hasn't been operating under normal circumstances since November 7 when a day after the U.S. election, investors' focus shifted squarely to the looming "fiscal cliff." Investors are increasingly nervous about the ability of lawmakers to undo the $600 billion in tax increases and spending cuts that are set to begin in January; those changes, if they go into effect, could send the U.S. economy into a recession. "Given the 'on again, off again' fiscal cliff (negotiations), it's rather surprising how resilient this market has been," said David Rolfe, chief investment officer at St. Louis-based Wedgewood Partners. "Between now and the end of the year, there's going to be an information vacuum outside the fiscal cliff, and I believe that resiliency will be tested." In contrast to the apparent calm in equities, the CBOE Volatility Index (.VIX), a gauge of market anxiety, jumped 5.4 percent, its largest daily gain in two weeks. The VIX also rose for the week, but posted a whopping 14.7 percent decline for November. A string of economic indicators next week, which includes a key reading of the manufacturing sector on Monday, culminates with the November jobs report on Friday. But the impact of those economic reports could be muted. Distortions in the data caused by Superstorm Sandy are discounted. The spotlight will be more firmly on signs from Washington that politicians can settle their differences on how to avoid the fiscal cliff.