President Barack Obama said Tuesday that a proposal by House Speaker John Boehner on Monday was "still out of balance." Obama, in an interview with Bloomberg Television, insisted on higher taxes for wealthy Americans.
Republicans, led by Boehner, have balked at Obama's proposal of $1.6 trillion in additional taxes over a decade, and Monday called for increasing the eligibility age for Medicare and lowering cost-of-living increases for Social Security benefits.
"Politicians are doing their negotiating dance. They both start out on their extreme positions. The question is how long until they get into the middle," said Rex Macey, chief investment officer at Wilmington Trust Investment Advisors in Atlanta.
Among stocks making big moves, Darden Restaurants, owner of the Olive Garden, Red Lobster and LongHorn Steakhouse restaurant chains, fell $5.02, or 9.6 percent, to $47.40 after cutting its profit forecast for fiscal 2013.
Separately, analysts at Credit Suisse said that restaurant-goers would "quickly lose their appetite" if the U.S. went over the "cliff" because the job cuts that would likely follow would curb discretionary spending.
Stock trading will likely become increasingly more volatile the longer talks progress without a deal, said JJ Kinahan, chief derivatives strategist at TD Ameritrade.
"If you looked back a week ago, most people were under the impression that we'd get this solved fairly quickly," Kinahan said. "There hasn't really been any positive news, or any positive movement, in the last few days, and with that it makes people more and more nervous."
Despite the slow pace of the talks, the stock market has gained back nearly all of a post-election slide caused by concerns about the fiscal impasse. The S&P is now about 1.5 percent below where it was on Nov. 6. In mid-November it had dropped as much as 5 percent.
Bill Gross, the managing director of fund manager PIMCO, told investors in his regular newsletter that they should expect annualized bond returns of 3 to 4 percent at best in the future and stock returns that are "only a few percentage points higher."
The S&P 500 has risen 12 percent this year. High debt levels and slowing global growth will weigh on the economy, Gross said.
The yield on the 10-year Treasury note fell 1 basis point to 1.61 percent.
Among other stocks making big moves:
Big Lots gained $3.23, or 11.5 percent, to $31.27 after the discount retailer raised its full-year earnings forecast and reported a loss that wasn't as bad as analysts had expected.
Pep Boys fell $1.11, or 10.4 percent, to $9.57 after posting a loss on weak sales at the company's auto stores and reporting rising costs.
MetroPCS fell 81 cents, or 7.5 percent, to $9.96 after Reuters reported that Sprint isn't currently considering making a counter offer for the cellphone business. MetroPCS and T-Mobile said in October that they had agreed to combine their businesses.