Around fi-plan Partners, our “Christmas spirit” and avid market watching is beginning to “merge into one” as we get deeper into the holidays. The tax bill will move to the House of Representatives floor on Friday after the successful 81-19 Senate vote. The House will vote first on an alternative with a higher estate-tax rate favored by many Democrats. If that measure fails, the House will then vote on whether to forward the Senate bill to President Obama for his signature. Passage of the alternative estate-tax plan would return the tax issue to the Senate, where Republicans say they will refuse to make any changes. The House is expected to pass the bill, but if that for some reason does not happen, the markets could reverse the gains of early December that were largely tied to the prospects of passage.
The markets had a slightly higher open this morning with positive economic reports that will be highlighted below. Several key earnings reports are due today, including FedEx and Oracle. In addition, market observers are focusing on the EU’s efforts toward a more permanent solution to its debt crisis.
Other than our keen focus on the tax bill, here are four other items that we were discussing in the office this morning that we thought would be of particular interest to our readers.
As expected, the economic data continues to meet higher expectations. Jobless claims declined to 420,000, slightly better than expected. The four-week average of claims, a less volatile measure, declined even more and is now at its lowest level since early 2008. Housing starts rose 3.9% for November with an upward revision to October data. Within the housing starts report, building permits, a leading indicator, were weaker than expected versus forecast, but is “explainable” considering a near 1% rise in residential mortgage rates over the past few weeks.
Yesterday, municipal bonds began to stabilize somewhat. Municipal bonds finished unchanged Wednesday afternoon with long-term AAA-rated yields near 5% helping investor demand. As with the taxable market, the approaching year-end is keeping trading conditions illiquid and probably exacerbating weakness.
Treasuries closed weaker again on Wednesday despite being positive for most of the trading day. As with the municipal bonds just mentioned, illiquid conditions are occurring as bond dealers and market makers are trying to keep balance sheets light for year-end reporting.
The Philadelphia Fed Index of regional manufacturing will be released later this morning. The data is expected to suggest that manufacturers remain in an “expansion” mode.
As always, email me here with questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Greg Powell, CIMA