Archives For Fiscal Cliff

Fiscal Cliff Uncertainty

December 10, 2012

Weekly Update December 10, 2012

Markets experienced another choppy week, disturbed by ongoing fiscal cliff debates and lackluster economic data. Equities finished the week mixed, with the S&P gaining 0.13%, the Dow gaining 0.99%, and the Nasdaq losing -1.1%.[i]

After another week of back and forth between Democrats and Republicans, no fiscal cliff resolution is in sight. Despite offers on the table from both parties, the debate remains stalled on the issue of higher taxes for the wealthy. Although both sides are exchanging accusations of brinkmanship, multiple polls suggest that Americans will blame Republicans should politicians fail to reach a deal.[ii] It appears as though President Obama and Congressional Democrats are content to stall the clock in the hopes of pushing Republicans into grudging agreement with their plan to raise taxes on the wealthiest Americans (Those earning $250,000.00 or more per year).

Although we have been talking about the fiscal cliff with our clients for many months, the media is making up for its lateness to the issue with hysteria. In truth, the fiscal cliff deadline isn’t December 31 st, it’s actually much sooner.[iii] According to the rules in the House of Representatives, the last day any bill can be submitted for consideration is December 18th since Congress will adjourn for the year on December 21st, and they need at least three days to deliberate. However, since President Obama may be leaving on December 17th for his annual family vacation to Hawaii, next Monday might be the last possible date for a fiscal cliff resolution.[iv]

At this point, it seems unlikely that lawmakers will be able to hash out a compromise in the week we have left. While a lack of a resolution means we probably won’t see a year-end market rally, regardless of whether a deal is reached or not, the economy won’t suddenly stop on January 1st. It will take time for the full effects of tax increases and budget cuts to kick in, giving lawmakers further time to come to a resolution.

 

Looking ahead, we have the year’s final Federal Reserve FOMC meeting this week; analysts don’t expect interest rate targets to change. However, many will be closely watching the 4th quarter growth forecast, which Fed economists will announce before Bernanke speaks.

Whatever the remaining weeks of the year have in store, I’ll be monitoring the situation and will keep you up to date.

The Fiscal Cliff Simplified

December 4, 2012

There has been so much discussion and rhetoric regarding The Fiscal Cliff. How does it impact you and your family? Its often hard to say or know if it will and if so how much? Principal Funds  provided an easy to follow infograph that I wanted to share with you. Follow the link to read more about The Fiscal Cliff and Where Do You Fall?

 

Feel free to contact me with any additional questions regarding how it may impact your personal planning.

Markets on Edge

December 3, 2012

Weekly Update – December 3, 2012

The combination of unease in Europe and political bickering in Congress set equity markets on edge last week. In spite of the turbulence, key indices still managed to close positive for the week, with the S&P 500 gaining 0.5%, the Dow gaining 0.12%, and the Nasdaq gaining 1.5%.[i]

Markets slid Friday after comments by House Speaker John Boehner indicate that fiscal cliff talks have stalled. While the Democrats are seeking $1.6 trillion in tax increases (aimed largely at wealthy taxpayers), as well as $50 billion in additional stimulus spending, Republicans are focused on reducing the deficit through closing tax loopholes and reducing entitlement programs.[ii] Since these are essentially the same issues that have been argued over the last year, it seems as though lawmakers are more interested in theatrics than in resolving the issue before the end of the year.

A Greek aid deal was finally reached Tuesday as European ministers convinced a skeptical International Monetary Fund (IMF) that their formula for getting Greece back on track had good odds of success. The deal will cut Greek interest rates and give the ailing nation additional time to pay back rescue loans while giving it a 34.4 billion-euro loan installment in December.[iii] As part of the agreement, Greece’s debt-to-GDP ratio is expected to decline from 190% in 2014 to 124% in 2020. We hope – rather than expect – that Greece will be able to meet the terms of its new deal. Markets appeared to share our skepticism and did not show much reaction to the news.[iv]

Next week will see the release of some key economic data, including November jobless claims, which we expect to come in lower as the effects of Superstorm Sandy continue to fade. Although Sandy hit in the latter days of October, the Labor department conducts its payroll survey on the 12th of each month, meaning that November data will capture the effects of the storm. We’ll also be able to take a peek at the preliminary consumer sentiment report, which analysts will pore over to get a sense of what holiday retail numbers might look like.[v] We’ll keep you posted. Have a great week!

ECONOMIC CALENDAR:

Monday: ISM Mfg. Index, Construction Spending

Tuesday: Motor Vehicle Sales

Wednesday: ADP Employment Report, Productivity and Costs, Factory Orders, ISM Non-Mfg. Index, EIA Petroleum Status Report

Thursday: Jobless Claims

Friday: Employment Situation, Consumer Sentiment

 

Data as of 11/30/2012

1-Week

Since 1/1/2012

1-Year

5-Year

10-Year

Standard   & Poor’s 500

0.50%

12.61%

13.57%

-0.88%

5.13%

DOW

0.12%

6.61%

15.97%

-0.52%

4.64%

NASDAQ

1.46%

15.55%

14.88%

2.63%

10.36%

MSCI   EAFE

0.97%

13.78%

11.30%

-4.57%

4.66%

10-year   Treasury Note (Yield Only)

1.69%

N/A

2.07%

3.97%

4.21%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.

HEADLINES:

Chinese manufacturing expands in November. In a further sign that China may have turned the corner, the country’s official manufacturing index rose to the highest level in seven months. Economists believe that the country may experience additional growth in December due to Christmas.[vi]

European rescue funds downgraded. Moody’s Investors Service downgraded the Eurozone funds responsible for bailing out periphery nations to Aa1 from Aaa. The move was prompted by concerns about the high correlation in credit risk between the rescue funds and the countries funding them.[vii]

Investors flock to Treasuries. Despite the risks posed by the fiscal cliff, investors can’t get enough U.S. Treasuries. Reversing a 6-month trend, Treasury purchases topped corporate bonds as investors piled on, seeking asset protection rather than investment growth.[viii]

Corporations rush to issue debt in 2012. Record-low rates and potential tax law changes are driving a gusher of new corporate debt. The amount of investment-grade and high yield bonds issued this year is already at a record $1.2 trillion and is likely to increase before the new year when applicable tax laws may change.[ix]

QUOTE OF THE WEEK:

You’re happiest while you’re making the greatest contribution.” – Robert F. Kennedy



[i] http://www.briefing.com/investor/markets/weekly-wrap/weekly-wrap-for-november-26-2012.htm

[ii] http://www.bloomberg.com/news/2012-11-29/geithner-said-to-offer-fiscal-plan-with-entitlement-cuts.html

[iii] http://www.bloomberg.com/news/2012-11-26/euro-chiefs-claim-greek-progress-seek-to-persuade-ecb-imf.html

[iv] http://www.briefing.com/investor/markets/weekly-wrap/weekly-wrap-for-november-26-2012.htm

[v] http://blogs.wsj.com/marketbeat/2012/11/30/next-weeks-tape-sandy-washes-over-jobs-report/

[vi] http://www.bloomberg.com/news/2012-12-01/china-s-manufacturing-pmi-expands-for-a-second-month.html

[vii] http://www.cnbc.com/id/50031350

[viii] http://www.cnbc.com/id/50027436

[ix] http://www.cnbc.com/id/50027553