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Is It Really The Fiscal Cliff That Has Markets On Edge Again?

 December 04, 2012 09:50 AM

The market rallied from its June low on hopes the Fed would provide another round of quantitative easing. It turned out to be a classic case of buy on the rumor sell on the fact.

There was an additional spike-up for a couple of days when the Fed did come through with QE3 in September. But the market then immediately topped out.

Supposedly it was worried about the election, with the popular opinion being that if the Democrats were re-elected it would be bad for the economy and markets. But that seems to have been a case of sell on the rumor, buy on the fact. The market has been rallying since the election.

But is the rally already ending, with fear of the fiscal cliff taking over as the next problem?

[Related -World Growth: Mediocre or Pathetic?]

Perhaps. But I continue to think the negotiations on the fiscal cliff are proceeding about as should be expected, and will succeed.

We've had the initial wildly opposite general claims prior to talks beginning. We've had the initial general suggestions, which amounted to both sides being unwilling to give anything to the other side.

And now we've had both sides present their first actual proposals. Treasury Secretary Geithner presented the White House plan over the weekend, which Republican leader Boehner rejected, saying the Democrats couldn't possibly be serious in making such an offer.

[Related -Bullish Sentiment Solidifies Even In The Face Of Lofty Valuations]

And yesterday, we had Republicans present their first offer, which overall approximately matches the White House's $4 trillion tax and spend program. But under the Republican proposal, taxes would increase by $800 billion, about half of the White House proposal, and it would include $600 billion in savings from Medicare and other health programs, more than the $400 billion proposed by the White House.

Both sides rejected the initial proposals as would be expected, expressing disappointment that progress is not being made, and blaming the other side if the economy goes over the cliff, continuing to try to sway public support.

But now specific proposals are on the table from which each side can begin to slowly give ground over coming weeks to meet in the middle in an agreement.

It looks to me like the normal snail-like progress seen in the early stages of any negotiations.

But is the market's new problem actually something beyond the fiscal cliff, like maybe the economy again?

Yesterday in the U.S. Market.

A bit more volatility, with the Dow trading in a range of 130 points. It was to the upside in the early going but turned down after the ISM Mfg Index came in weaker than expected.

The Dow closed down 59 points, or 0.5%. The S&P 500 also closed down 0.5%. The NYSE Composite closed down 0.5%. The Nasdaq closed down 0.3%. The Nasdaq 100 closed down 0.2%. The Russell 2000 closed down 0.1%. The DJ Transportation Avg. closed down 1.1%. The DJ Utilities Avg closed down 0.7%.

Gold closed up $1 an ounce to $1,716.

Oil closed unchanged at $88.90 a barrel.

The U.S. dollar etf UUP closed down 0.3%.

The U.S. Treasury bond etf TLT closed up 0.1%.

Yesterday in European Markets.

European markets were mixed yesterday. The London FTSE closed up 0.1%. The German DAX closed up 0.4%. France's CAC closed up 0.3%. Greece closed up 1.2%. Ireland closed down 0.1%. Italy closed up 0.4%. Spain closed down 0.6%. Russia closed up 0.6%.

Asian Markets were mixed Sunday night and again last night .

Among individual markets last night:

Australia closed down 0.6%. China closed up 0.8%. Hong Kong closed up 0.1%. India closed up 0.2%. Indonesia closed down 0.8%. Japan closed down 0.3%. Malaysia closed unchanged. New Zealand closed down 0.8%. South Korea closed down 0.3%. Singapore closed down 0.1%. Taiwan closed up 0.1%. Thailand closed down 0.2%.

Markets This Morning:

European markets are mixed this morning. The London FTSE is down 0.1%. The German DAX is down 0.1%. France's CAC is up 0.4%. Spain is up 0.2%. Greece is down 1.2%. Italy is up 0.6%.

Oil is down $1.17 a barrel at $87.92.

Gold is plunging $25 an ounce at $1,695.

This Morning in the U.S. Market:

This week will be a fairly heavy week for potential market-moving economic reports, including the ISM Mfg Index, Auto Sales, ADP Jobs Report, Factory Orders, and the ‘big one', the Labor Dept's Employment Report for November. To see the full list click here, and look at the left side of the page it takes you to.

Yesterday's reports were that the ISM Mfg Index unexpectedly fell from 51.7 in October to 49.5 in November, its lowest level since the last recession ended July, 2009. The consensus estimate was that it would remain at 51.7. The day's other report was that Construction Spending was up 1.4% in October, better than the consensus forecast of an increase of 0.5%.

U.S. automakers also reported November sales yesterday. GM sales were up 3.0%. Ford sales were up 6%. and Chrysler sales were up 14%.

Global automakers will be reporting their U.S. sales today.



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