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Daily State of the Markets Good morning. As of Thursday afternoon’s close, the S&P 500 finds itself down -7.67% from the recent bull-market high set on September 14th and is off -5.25% in the seven sessions since President Obama was re-elected. Unless you’ve been holed up in meetings for the past week, you are also likely aware of the fact that there are lots of worries in the market right now. Some of the worries are new and some are old. But to be sure, there are plenty of issues to worry about. And the question in my mind is if these worries are actually warranted from a big-picture standpoint. Before we get to the question at hand, I’d like to remind everyone that the purpose of my oftentimes meandering morning market missive is two-fold. First, we want to be sure we can identify the current market environment. And second, we strive to identify and understand the drivers of the current action. As such, I will try to tie my question in with our goals this fine Friday morning. For starters, it should be fairly obvious to anyone/everyone that currently owns equities (or anyone who has exposure to the equities markets via their 401K plan) that the stock market is in a corrective mode at the present time. And unless you don’t pay attention at all, I think it is easy to see that the drivers of the decline include the so-called “fiscal cliff,” a punk earnings season, the same-old- same-old in Europe/Greece, concerns about global growth, and then more recently, worries about the escalating tensions in the Middle East. The key issue at the present time – at least as far as the stock market is concerned – appears to be the fiscal cliff. What makes this so interesting is that neither the concept nor the deadlines for this problem are new. Nope, we’ve known about the potential negative effects the cliff could have on the economy for more than a year. But, as I wrote earlier in the week, in the stock market things don’t matter until they do – and then they matter a lot. As investors then, we find ourselves once again glued to the wires waiting for any news item relating to the battle of the budget. And if you’ve been playing this game for any length of time, you know how this is going to turn out. As the clock ticks down to Jan 1, 2013 (btw, is it mandatory for all financial sites to have a running “fiscal cliff” clock now?), the stock market will likely be pushed and pulled in a violent fashion as the algos react to each new headline, comment, and/or rumor. So, I guess we’ve got that to look forward to in December – super. But as Winston Churchill so eloquently said many years ago, “The Americans can be counted on to do the right thing… after they have exhausted all other possibilities.” And given what is at stake, I for one believe that neither political party wants to be blamed for the good ol’ USofA “going over the cliff.” However, this is not to say that each party won’t spend the next 45 days trying to make the other side look bad. So, we also have that to look forward to – awesome. As one commentator said Thursday, both sides have to look like they are going for the best deal they can. You see, if those professional politicians agree to a deal too early in the game, they will take heat from the extremists in their party that they didn’t “push hard enough.” Insert eye-roll here. So, getting back to the question of the day, no, I don’t personally think that the worries over the fiscal cliff are warranted. I do believe that both parties understand that they can’t take this to the extreme they did during the last go round. As such, I also believe some sort of deal will get done. Will be the end-all deal? Probably not. But it’s a decent bet that we won’t go over “the cliff” either (well, not directly, of course). However, before you fire up that margin account, let me also says that the worries over the growth outlook just might be warranted. And while the concerns about the growth rates both here at home and across the pond aren’t getting a lot of attention in the press right now, I’m of the mind that this may be the real issue at hand going forward. Sure, stocks are likely to pop 2.5% when we get some good “cliff” news. But unless the children in Washington can come up with a plan that might stimulate growth in the near term, my guess is that corporate America isn’t going to embark on a hiring spree anytime soon and that the Q4 earnings parade is going to also wind up in the disappointing column. Remember, while analysts took a hatchet to the Q3 EPS and revenue estimates this summer, the Q4 numbers still look too high. So… are the worries warranted right now? I’ll say yes and no. But the problem is this answer isn’t likely to lead to the traditional post-election and year-end rallies that the bulls had hoped for back in September. However, it is also important to recognize that the market’s focus can change at the drop of a hat. And it is for this reason that I write Daily State of the Markets as often as possible. Turning to this morning… Hopes that new elections in Japan will bring more stimulus lifted Japanese stocks an impressive 2.2%. In addition, European markets are modestly lower this morning on the usual stuff. However, the main focus today will be on Washington as Congressional leaders head to the White House for talks on the Fiscal Cliff. We can expect any and all comments to be parsed instantly and to move the markets. And given that today is a quad-witch options expiration, we just might see some volatility. On the Economic front… We will get reports on Industrial Production and Capacity Utilization this morning. Thought for the day… Things turn out best for the people who make the best of the way things turn out. -John Wooden Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell…
Positions in stocks mentioned: none Follow Me on Twitter: @StateDave Download our Special Report on our New “Adaptive” Active Risk Management System for the Stock Market The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided. The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed. The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer. Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice. Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results. !========>!========> |
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