(This is Mark Vickery substituting for Sheraz Mian while he
is away this week.)
In what must be the longest 11th hour in the history of time,
legislators in Washington DC have finally put together a
compromise deal that will avoid the largest tax increase in U.S.
history and $110 billion in government spending cuts. Though the
next chapter in this "epic" battle will occur when the debt
ceiling debate begins in the coming days, weeks and months, for
now the pre-markets are up on the news.
Not only that, but overseas markets have made notable gains
upon hearing the fiscal cliff in the U.S. has been (temporarily)
avoided. The Hang Seng in Hong Kong has gone up 2.9% to its
highest level in a year and a half. Markets elsewhere in Asia
also showed gains, and European markets increased over 2% on the
Still relatively fresh off his successful re-election bid 2
months ago, President Obama seemed content to play chicken with
the fiscal cliff issue in Congress. He has now gotten a
short-term victory with tax increases to Clinton-era levels and
an increase in the inheritance tax for the wealthy, but the drama
regarding entitlement reforms and the debt ceiling will remain
with us. So while markets may finally be able to exhale in relief
this week, the new year is far from putting these issues behind
We also will see fourth quarter earnings season emerge over
the next couple weeks, but preliminary expectations are less than
sunny. We've seen a 3.6 negative guidance ratio for the S&P
500 for Q4, more or less in-line with pre-Q3 guidance -- and Q3
was a tough quarter, no matter how you slice it.
Though Housing and Consumer Discretionary stocks may continue
to see improvement, recent stalwarts like IT still appear to be
flagging. Overall, 3% growth is expected by analysts for Q4
earnings -- and while that's a lot better than the 0.1% we saw in
Q3, it's a far cry from the 9.9% expected just a few short months
With the holiday season in the rear-view window, our markets
may indeed rejoice short-term to ring in the new year. But
obviously we will keep our eye on the ball going forward. After
all, in the past 2 years, we'd seen markets ramp up big gains in
the early months on the calendar upon abundant optimism, only to
give many of those gains back in the later months as earnings
results brought everyone back down to earth.
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