Angst Over Fiscal Cliff Mounting

George Brooks |

It’s time to step back far enough to digest what has happened in the world events, global economies and the U.S. stock market. It’s an exercise that is necessary when single focus items cloud the big picture. Investors feel they got what they have obsessed for since early June when the DJIA reversed a one-month, 10% plunge and began a gradual 13.5% recovery. Assurance that the euro would be preserved was the biggie, a meltdown would have unknown and ugly consequences.

Running a close second, investors wanted assurance the Fed would step in to rescue a slumping economy, which stood to slump further in face of global economic weakness. Investors got assurance for the euro in mid-August and QE3 in mid-September.

Investor’s first read - an edge before the market opens
DJIA: 13,579.47
S&P 500: 1460.15
Nasdaq Comp.: 3179.96
Russell 2000: 855.51
HIGHLIGHTS TODAY: Big picture, fiscal cliff, stock market correction, presidential debates, euro-discord

NOW WHAT?

How about worry that QE3 won’t goose the economy fast enough, that “save the euro” will have its speed bumps and too many members of Congress won’t put country ahead of political ideology, ergo ongoing uncertainty about spending and taxes.

Congress adjourned Saturday to campaign, hoping it wouldn’t be held accountable for the potential horrors of the fiscal cliff, but I don’t think the press will let them get away with it.

Expect the issue to become a burr under the Street’s saddle until and beyond the Nov. 6 election. While I have noted often, Congress has wiggle room on this issue and before its recess, Congressional leaders were setting the stage for post-election negotiations to avert automatic spending cuts and address the expiration of the Bush-era tax cuts.

CONCLUSION:

The Street will need some hard, cold facts now about the U.S. and global economies and the willingness of Congress to address spending and tax issues in a bipartisan way. Softness in the economy here and abroad is mostly factored into stock prices, what isn’t is the possibility that efforts to stimulate recoveries will either take longer to work or will fail.

Failure to produce solutions to the fiscal cliff issues as a result of more gridlock and “my way or the highway” obstruction out of Congress is NOT factored into stock prices. Whether members of Congress out campaigning want to be confronted with this out of the question. They will and the issue will mount in enough visibility to impact the stock market.

TODAY:

The market is very close to a correction. It can be sharp, but more likely will be a sideways-to down slide before the November 6 election. Rally failures where the market closes at its low for the day, especially after a spurt up would be a tip off.

ECONOMIC REPORTS: I will post the following list of reports on Monday only, then follow up with an update of a report where appropriate. I suggest you visit “mam.econoday.com” if you are interested in economic reports – an excellent website which posts the week’s summary on Sunday along with national and international summaries..

MONDAY:

Dallas Fed Mfg. Ix, (10:30) – Index improved to minus 1.6 in August from minus 13.2 in JUly, however the “production” index dropped to 6.4 from 12.0.

TUESDAY:

S&P Case Shiller Home Price Ix (9:00) – Rose 0.9% in June after a 1.0% gain in May. Year/year gain is 0.5%, 18 of 20 cities surveyed showed gains.

Consumer Confidence (10:00) – dropped 4.8 points in August to 60.6.

FHFA home price Index (10:00) – Gained 0.7% in June. Year/year gain is 3.6%. The Index is based on single family homes using data supplied by Freddie Mac and Fannie Mae and shows a more pronounced improvement in home prices since March 2011 than Case Shiller.

Richmond Fed Mfg Ix (10:00) –Improved slightly in August at minus 9 vs. minus 17 in July.

WEDNESDAY:

New Home Sales (10:00) – Up 3.6% in July to an annual rate of 372,000. Supply of homes is at a sales rate of 4.6 months, down from 4.8 months in June.

THURSDAY:

Durable Goods (8:30) – Jumped 4.1% in July after a rise of 1.6% in June.

Jobless Claims (8:30) – Down 3,000 to 382,000 for the September 15 week. Half the 18,000 jump in the prior week was attributed to Hurricane Isaac.

GDP (8:30) – The second estimate of Q2 GDP was revised up to an annual rate of 1.7% from an initial estimate of 1.5%.

Pending Home Sales (10:00) – Jumped 2.4% in July after a 1.4% drop in June. Year/year increase is 12.4%.

Kansas City Fed Mfg Ix (11:00) –Index in August rose to 8.0 from 5.0 in July.

FRIDAY:

Chicago PMI (9:45) – Was 53.0 in August, down from 53.7 in July. New orders rose 1.9 points to 54.8.

Consumer Sentiment (9:55) – Up sharply 4.9 points to 79.2, the best reading of the year. “Expectations” rose 8.3 points to 73.4.

Note: Economic data above is subject to revision, so what you see as the latest reading may change in the next report.
George Brooks
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The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.


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