Weekly Update – January 7, 2013
Markets finished the first week of 2013 with a bang, upbeat over resolution surrounding fiscal cliff talks. The S&P 500 closed up 4.6% for the week, hitting a high of 1,466 on Friday; a level not seen since December 2007. The other indices also closed up, with the Dow gaining 3.8% and the Nasdaq climbing 4.77%.[i] Although soon-to-be-released fourth-quarter earnings data could slow things down, a flood of new pension and 401k money has potential to keep the rally going.[ii] Only time will tell the story.
Though you may be following this already, we feel a responsibility to recap some recent events and their
outcomes. The U.S. Senate was finally able to reach a deal with the Whitehouse in the early hours of January 1, after which the House ratified the American Taxpayer Relief Act of 2012. Major provisions of this bill include:
- Raise $600 billion in revenue over 10 years through tax increases. Postpone for two months the start of $1.2 trillion in automatic spending cuts. (Unfortunately, postponing spending cuts just means that we’ll be revisiting the issue again soon.
Permanently extend the Bush Tax Cuts for income below $400,000 per individual, or $450,000
per family. Income above that level would be taxed at the highest rate of 39.6%. For earners in the top bracket, capital gains and dividend tax rates would return to 20% from 15%.
- Permanently patch the Alternative Minimum Tax (AMT) and index it to inflation.
- Extend unemployment benefits for one year for the long-term unemployed.[iii]
Although Americans are relieved that the fiscal cliff quagmire is over, a Gallup poll shows that
opinions are split over the deal, with 43% showing approval, while 45% disapprove.[iv]
There is still much work to be done when it comes to balancing our nation’s finances, and this deal barely puts a dent in the budget deficit, but we hope lawmakers will remain committed to formulating lasting solutions.
Looking ahead, fourth quarter earnings will kick off this week and American corporations will be under the microscope as analysts try to decide whether fundamentals support further market upside.[v]