Our Most Recent Fiscal Cliff Update

Ashley PageLet’s take a “look ahead” at a few items that we will be tracking carefully. These are just a few opinions that we have, and as with life, nothing is certain about them.

  1. First of all, here’s a “week-at-a-glance” view of what’s coming up over the next five market days.

    Monday gets us “right out of the gate” on the commercial data front, with numbers on October construction spending being released. In addition, auto makers report on November sales and The Institute of Supply Management (ISM) releases results of its manufacturing survey. Tuesday is internationally focused, as both the EU finance ministers and NATO foreign ministers are meeting in Brussels. Wednesday returns our emphasis to domestic data with the release of factory orders for October. Also on Wednesday, the Labor Department issues revised estimates of third-quarter productivity and the ISM publishes its service-sector index. On Thursday the government reports on initial jobless claims. The market week ends Friday with The University of Michigan’s consumer sentiment index being released. The Labor Department also reports on the employment situation for November and data on consumer credit nationally is also being released.

    What does this mean for investors?

    This will be a very interesting week to gauge data on both consumer confidence and overall economic conditions throughout the country. Will this large collection of market-impacting data be able to “break through the noise” of the continuing fiscal cliff discussion?

  2. Here’s the most recent fiscal cliff update.

    Not surprisingly, both Republicans and Democrats postured over the fiscal cliff through the weekend, with each saying that the other will be to blame if the economy falls over the edge, which both sides said it might do. Jim Kessler of The Third Way consulting group summarizes nicely where we are at this moment when he states, “this thing could fall apart….but there’s still a few more days where we should expect this kind of rhetoric before they start to coalesce around a deal.”Financial Market Outlook

    What does this mean for investors?

    Uncertainty is just a killer for businesses, particularly those trying to do some sort of strategic plan for 2013. Correctly, many companies have crafted multiple “what if” plans, but there is just no way to execute either until some sort of solution is reached. In the meantime, possible capital expansions that could help employment, and market confidence, are being held hostage by all of this. In our mind, “falling over the cliff” and staying there would clearly be recessionary in impact.

  3. Economic data from other parts of the globe is mixed.

    First, Eurozone manufacturing remains firmly in the doldrums according to recent data, although we may be witnessing the first portion of a “bottoming out” for the region. Second, Chinese manufacturing metrics moved into expansion territory for the first time in 13 months in November, a sign that there recent monetary easing measures may be “working through” their economy. Third, Japan’s overall economic situation continues anemic, primarily driven by significant drops in auto exports to China. Because of the on-going territorial dispute between the two countries, sales of two of Japan’s better known auto brands were off anywhere from 22%-29% in November.

    What does this mean for investors?

    Where a strong export market for American goods helped us “power through” to some degree the post-2008 economic downturn, we will need to look more “inward” to U.S. sales this time. Hopefully, resolving the fiscal cliff along with a continuing “energy renaissance” here in the U.S. (and its resulting cheap energy costs for American companies) will help us do just that.

  4. We still continue to “whistle past the graveyard” on Spain.

    Clearly, Spain continues to be the next potential “flash point” for Europe as we approach 2013 and still falls into the “bailout” category, although to what extent remains unclear. While Spanish government bonds closed two weeks of strong trading Friday, betting on those bonds, in effect, is a referendum on: (1) how smoothly a bailout would proceed, and (2) whether the country can generate enough growth to pay off what it owes. Neither is a foregone conclusion. Ultimately, the question for Spain is whether it can regain the confidence of large foreign investors, many of which have been shedding Spanish bonds for two years or more.

    What does this mean for investors?

    The size of the Spanish economy, combined with Italy, really matters to the world economy. Hopefully, the beginning of 2013 does not bring us increasing market pressure from Europe’s larger economies and a lack of resolution on the fiscal cliff at the same time.

  5. If you have any questions, please call me or email me here.

    Ashley Page
    Senior Vice President
    Wealth Consultant

    Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.

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