Fiscal fear prevails
by Peter Switzer
The best news for Wall Street in a week when the Nasdaq was down 4.17 per cent, the Dow Jones Index was off 3.88 per cent and the S&P 500 was some 3.7 per cent underwater, was that when the Republican boss in the Congress, John Boehner said, “I believe we can do this”, the stock market spiked up.
That’s why I have been arguing that the fiscal cliff negotiations will take the market down and a good solution will take it up.
And while any solution will be a positive, when it comes to a sustained solid rally, it would be best that President Barack Obama and the Congress come up with a market-ticking solution.
The Nasdaq logged its sixth consecutive week of losses, its longest streak in over three years. And the Dow posted its fourth straight losing week, the longest since last August.
It’s interesting how this has played out with the Nasdaq down six weeks in a row and close to correction territory — down 10 per cent — but the VIX, which measures market fear, is still only at 16.42. Fear is being contained for the moment and this is based on reasonable investors believing reasonable politicians won’t allow the US economy to go over the fiscal cliff, generating a recession.
In the news
Making market matters worse are a range of challenges including:
- Israel and Palestine exchanging rockets
- Syria and its effects on Turkey
- The oil price is rising because of the above issues
- US economic data will be affected by Hurricane Sandy
- Stocks are down around five per cent since election day
- Some investors are taking capital gains before a possible new tax regime on shares comes in if Obama gets his way
- The AAII sentiment survey shows bearish sentiment is at 48.8 per cent — this is the worst reading since August 2011 when the market really spat the dummy
Ahead this week there will be important housing data, a speech by Fed Chairman Ben Bernanke, PMI manufacturing index data, consumer sentiment and leading indicators before Thursday’s Thanksgiving celebrations.
Locally, the minutes of the latest RBA meeting will be big news for those searching for another rate cut in December.
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Published on: Monday, November 19, 2012
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