It's not the end of the world -- literally or for the fiscal cliff talks -- but the latest signs of gridlock on Washington have struck fear into investors.
Lawmakers in the House failed to support the so-called "Plan B", a proposal backed by House Speaker John Boehner, late Thursday. The White House had already threatened to veto that plan, saying it would bring only "minimal" changes in projected budget deficits, but its failure underscored the lack of progress on Capitol Hill as the cliff draws nearer.
"Although the principal purpose of the proposed vote was to give [Boehner] additional leverage in his negotiations with President Barack Obama, this was nevertheless something of a set-back and is making markets more nervous," Nomura analyst Alastair Newton wrote in a research note.
U.S. stock futures fell early Friday, after U.S. stocks drifted higher Thursday amid the ongoing gridlock in Washington. Investors fear automatic tax rises and spending cuts due January 1 in the absence of a fiscal cliff deal could tip the U.S. into recession.
Nasdaq and S&P 500 futures were down 1.3% ahead of Friday's open, while Dow futures lost 1.2%.
Mark Luschini, chief investment strategist at Janney Montgomery Scott, called the fate of the Plan B proposal "a litmus test for the receptibility of our Congress people to work toward a concrete solution."
"This is indicative of the kind of difficulty there will be to have something accomplished by year's end, and that's why you'll see pressure on equity prices," he said.