Earnings season is winding to a close with 487 of the S&P 500 companies having reported already, so what will traders look to this week for market drivers? Greece’s financial woes and the so-called fiscal cliff, a series of tax hikes and spending cuts set to go into effect at the start of 2013 with more than $600 billion in implications, impacted market sentiment last week and will be in focus again this week.
Greece, a debt-riddled country in the midst of a lengthy recession (if not a flat-out depression), is desperate for its next tranche of bailout funds. A summit amongst European financial ministers is ongoing and traders had expected that a deal would be inked last week to release rescue cash to Greece, to no avail. German Chancellor Angela Markel has delivered commentary that she believes an agreement could be reached early this week, but the International Monetary Fund is looking for Athens to provide information that the stream of bailout funds will not go on forever. Investors want to see the deal done.
Wall Street was anxious and risk adverse for the first two weeks after the elections on November 6 with Democrat Barrack Obama remaining seated in office for four more years. Investors were left contemplating whether the President and Congress could reach an agreement by the end of the year to avoid the cliff.
As a result, the Dow Jones Industrial Average tumbled by more than 600 points, or 4.6 percent, in just eight days.
News of negotiations in Washington being constructive helped lift markets last week to recover 421 of those lost points during the holiday-shortened week.
Lawmakers return to Capitol Hill this week for a three-week lame duck session after taking time-off for Thanksgiving. Politicians have got a large agenda, including postal reforms, the Violence Against Women Act and Foreign Intelligence Surveillance Act, in addition to addressing the fiscal cliff that is now only 35 days away. Of course, from a Wall Street standpoint, the fiscal cliff will be the only one of market moving importance.
Last Tuesday, Federal Reserve Chairman Ben Bernanke warned –as he has in the past – that the central bank does not have the tools to deal with the States going over the fiscal cliff and that the economy could be derailed if lawmakers can’t come to terms quickly.
Economic data was slight last week because of the holiday, but picks-up steam again this week.
A look at market-influencing reports:
- Monday – Dallas Fed Manufacturing Survey
- Tuesday – S&P Case/Shiller Home Price Index and Durable Goods Orders
- Wednesday – New Home Sales
- Thursday – Initial Jobless Claims, Pending Home Sales and Gross Domestic Product
- Friday – Personal Income and Outlays and Chicago Price Managers’ Index
The gallimaufry of information on the economic calendar will give investors a taste of many different sectors. The housing market has been showing strong data reinforcing the healing of the housing market since the collapse four years ago and will get several more pieces again this week. Manufacturing activity in the Philadelphia area was impacted by Hurricane Sandy as reported earlier this month when the Philly Fed Manufacturing Survey plummeted to a -10.7, indicating contraction in the region. Investors will be hoping for a better reading from Dallas. Gross domestic product, the broadest measure of economic activity, is always critical and will be closely watched to see if it can meet the consensus of 2.8 percent growth for the first month of the fourth quarter.
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