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And That's the Week That Was
Brounes & Associates
By Ron Brounes
December 24, 2012


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Market Matters…         

                           

Market/Index

Year Close (2011)

Qtr Close (09/30/12)

Previous Week

(12/14/12)

Current Week

(12/21/12)

YTD Change

Dow Jones Industrial

12,217.56

13,437.13

13,135.01

13,190.84

7.97%

NASDAQ

2,605.15

3,116.23

2,971.33

3,021.01

15.96%

S&P 500

1,257.60

1,440.67

1,413.58

1,430.15

13.72%

Russell 2000

740.92

837.45

823.75

847.92

14.44%

Global Dow

1,801.60

1,921.70

1,973.39

1,998.76

10.94%

Fed Funds

0.25%

0.25%

0.25%

0.25%

0 bps

10 yr Treasury (Yield)

1.87%

1.64%

1.71%

1.75%

-12 bps

 

In the current political scenario, who is playing the role of the Grinch and who is Scrooge?  For over a month now, Prez Obama and Speaker Boehner have proposed various budget plans, while shooting down rival plans; they have generated key support, and scoffed at the other side’s key support.  While both sides claim they are relatively close and “should” be able to compromise, the rhetoric implies differently.  Less than two weeks and counting until the new year and the two may soon be running out of ideas (and time).  This week, Obama claimed a willingness to raise the income level on folks subject to tax increases.  Meanwhile Boehner chose not to move forward with his Plan B, temporary legislation that would have extended the current rates on households earning less than $1 million due to lack of party support by Conservatives who wanted accompanying spending cuts.  The Administration had promised to veto the bill so any vote would have been merely symbolic.  Any last minute “shopping” ideas in DC?       

Transactions highlighted the week’s activity as corporations were in deal-making mode at year-end.   GE looks to be in the market to buy Italian aerospace group Avio SpA for about $4 billion.  NYSE Euronext may be sold to IntercontinentalExchange for over $8 billion as the old line stock exchange gives up its independence.   Buybacks were the word of the day as nonfinancial companies have about $1.7 trillion burning holes in the pockets, but remain hesitant to invest in infrastructure, equipment, and technology given the uncertainties within the economy (and the fiscal cliff).  Through September, corporations had bought back $274 billion more shares in 2012 than they issued.  Bed Bath & Beyond became the latest with the announcement of a $2.5 billion buyback program.  GM plans to buy 200 million shares currently owned by the US Treasury as the automaker moves beyond the government’s rescue.  In legal news, Morgan Stanley faces $5 million in fines from Massachusetts’ regulators for exerting “improper influence” in the Facebook initial public offering.  UBS agreed to pay about $1.5 billion as part of a finding that it conspired to profit from manipulating the LIBOR index.  Samsung agreed to drop injunctions against Apple in Europe over patent disputes.   In earnings news, economic bellwether FedEx posted a 12% drop in quarterly profits on global economic concerns, while Oracle reported better-than-expected revenues and then added to its cloud technology with the proposed purchase of Eloqua.   

Investors started the week in confident spirits as prospects for compromise on the fiscal cliff seemed optimistic and the Dow Jones recorded consecutive triple digit up days for the first time since late July.  As the week progressed, the positive mood was diminished and the Speaker’s dismissal of Plan B brought the budgetary concerns to an entirely new level.  As the holiday and new year celebrations draw near, vacations (including Congress), skeleton trading staffs, and last-minute profit-taking could lead to more volatility and the lack of progress on the fiscal cliff issues surely won’t help matters.  Oil drifted up toward a two-month high near $90/barrel as a government report depicted a pickup in energy demand.  For the time being, the American people are left watching the antics of Scrooge and the Grinch in DC who seem willing to cast a bit of “humbug” on the spirit of the season. 

Economic Calendar

Date

Release

Comments

December 19

Housing Starts (11/12)

Pulled back after rising at fastest pace in 4 years in October

December 20

Jobless Claims (12/15/12)

4-week average at lower level since Sandy

 

GDP – 3rd qtr (revised)

Upward revision to over 3%

 

Existing Home Sales (11/12)

Fastest pace in three years

 

Leading Eco Indicators (11/12

Pointing to a slowdown in the economy

December 21

Personal Income/Spending (11/12)

Biggest rise in incomes in 9 months

 

Durable Goods Orders (11/12)

Increased for the 6th  time in 7 months

The Week Ahead

 

 

December 25

Christmas Day – Markets Closed

 

December 27

Jobless Claims (12/22/12)

 

 

New Home Sales (11/12)

 

 

Consumer Confidence (12/12)

 

 

Taking the fiscal cliff out of the equation, the domestic economy seems to be buzzing along quite nicely and even signs out of Europe look to be positive.  (Unfortunately, the Fiscal Cliff and all associated implications cannot truly be left out of any equation.)  The GDP rose in the third quarter by 3.1%, a revision from an earlier 2.7% gain reported, but some eternal pessimists expect a pullback in the fourth as Superstorm Sandy and cliff concerns weigh on overall activity (though a solid holiday season could help continue the strength).   Housing has emerged as the latest savings grace and the US home builders confidence index climbed for the eighth consecutive month to its best showing in over six years.  Likewise, existing home sales jumped in November by its fastest pace since November 2009, a time when Federal tax credits were needed to encourage buyers to act.   Though housing starts pulled back a tad last month, no doubt another byproduct of Sandy, 2012 remains on course to be the strongest year for new construction in four years.  Shifting to labor, though jobless claims increased in the latest weekly release, analysts still point out that the data will remain seasonally volatile through the end of the year.  On that note, the four-week moving average should be a more accurate measure and it fell to its lowest level since Sandy hit and temporarily shut down portions of the East coast.   Leading economic indicators shrank in November, a potentially alarming sign for a continuation of the solid activity in the new year. 

Looking abroad, the euro-zone seems likely to insist that Greece remains in the common-currency bloc and Standard & Poor’s expressed some confidence in the ailing country by lifting its rating to B-minus (from selective default).  While the bailout moneys should help the long-standing struggles within its economy, numerous challenges remain and the country is far from out of the wood (and the protests continue).  Germany reported a solid confidence index and the strongest euro-zone economy looks primed    for bigger and better thing in the new year (though many of its neighbors will continue to suffer).

On the Horizon…While Plan B seemed to be a last-ditch measure designed to provide a temp halt to the fiscal cliff and allow for more time to negotiate, some believe it became a mere ploy to shirk responsibilities for any failure from one party (R) to the next (D).  Early in the week, Boehner and Obama seemed to be making real progress on a compromise with Conservatives accepting a tax hike on the “ultra-wealthy” and the Administration raising the monetary definition of wealthy.  Now that the stop-gap measure fell through, House Republicans are claiming they can move no more and the onus for a lack of a deal remains clearly on the head of the Administration.  Retailers look forward to shopping laggards who wait for the last minute in search of season-ending deals  for the holidays.  Some consumers were hoping to see greater progress in the budget negotiations before running out to the malls (or logging onto their computers) though time is definitely of the essence.  Fund managers will begin making last minute changes to their portfolios as they unwind positions, take profits (capture losses), and set the course for the new year.  For many, 2012 will prove favorable in terms of performance, thanks to the Fed and a rebounding housing sector, though many uncertainties remain for the new year. 

 

(c) Brounes & Associates

www.ronbrounes.com

 


 

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