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What's for Xmas?

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by Peter Switzer

There are 23 days left before Christmas but will investors have anything to cheer about?

In a nutshell, if the fiscal cliff deal is sorted out before the festive seasons starts and the Reserve Bank (RBA) cuts rates tomorrow, then we should be set up for a nice run up of stocks into the New Year.

By the way, let me repeat last week’s warning that there could be a sell off after the good news of a fiscal cliff deal — markets often buy on a rumour and then sell on the fact — but I would see that as a buying opportunity for when stocks start going higher in January.

In the USA, the January effect has a positive impact on stock prices and as the economic scenarios for the USA, China and the ASEAN countries are all looking pretty good, the ducks seem to be lining up for share market optimists.

Cliff deal confidence

To the weekend action on Wall Street and fiscal cliff fears were low grade, so the Dow was up 3.76 points ending at 13,025.04, while the S&P 500 sneaked up a lousy 0.23 points to end at 1416.25. The big achievement, however, was the fact that there’s enough confidence in a cliff deal that no one’s dumping stocks.

Over November, the Dow was down 0.55 per cent for the month and is now up 6.61 per cent for the year. Meanwhile the S&P 500 index is up 0.29 per cent for the month and a nice 12.62 per cent for the calendar year. The Nasdaq is up 15.55 per cent year to date!

On the local front, the S&P/ASX 200 index is up 11.08 per cent but down 0.24 per cent in November — let’s call it flat.

On Wall Street

Showing us how confident market players are that a deal will be done, the Republican’s Speaker John Boehner told the media that the talks were "right now, almost nowhere", but still stocks resisted gravity.

That wouldn’t have happened last year and underlines how more optimistic investors are becoming.

Against this, US consumers spent less than was expected in October but countering that the Chicago ISM, which is a business barometer, went positive at 50.4 for the first time since August, though it was tick under economists’ forecasts.

Also, European stocks are now at a 17-month high, according to CNBC, after Germany agreed to a new funding deal for Greece.

Out this week

Ahead this week there’s a lot of important economic data, which the market will pore over, but the US jobs report on Friday will be the biggie for stocks as the cliff negotiations drag on.

Here in Australia there’s a swag of economic readings from home prices to inflation gauges to retail figures to building approvals, but we will also get the September economic growth number. There’s even the latest unemployment number and of course, the RBA should cut rates tomorrow — well, they should, but guessing these guys is not an easy task.

The Congress’s cliff decision will be vital for stocks but if Glenn Stevens plays Santa Claus tomorrow with a rate cut, then it could be a great Christmas for investors, retailers and the overall economy.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Monday, December 03, 2012

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