Ahead of Wall Street - December 27, 2012 - Ahead of Wall Street

An image of a few devices next to a stock chart Credit: Shutterstock photo

Thursday, December 27, 2012

Even with the 'Fiscal Cliff' deadline just days away now, the market isn't showing any major signs of anxiety. This looks like a conundrum, but the explanation actually may not be that complicated. Beyond the 'Cliff' debate, we got a better than expected Jobless Claims data this morning while the November New Home sales numbers are coming out a little later. We also have the Conference Board's December Consumer Confidence numbers on deck for release a little later.

Weekly Jobless Claims dropped a bigger than expected 12K last week to 350K, the lowest level in quite a while. The four-week average, which smoothes out the week-to-week volatility, dropped by 11.3K to 356.8K. The claims data has now shaken off the Sandy effects, though it tends to be relatively erratic at this time of the year. Part of this week's data was reportedly 'estimated' because state workers who report this data to the Labor Department were unavailable due to the Christmas holiday. As such, while the trend is positive, we shouldn't read too much into it.

With respect to the 'Fiscal Cliff' and the market's measured and sober reaction thus far. On surface, it doesn't make much sense given credible forecasts, including by the Congressional Budget Office, that the U.S. economy will fall into a recession if the automatic spending cuts and tax increases are not averted. Since we know how the stock market behaves in a recession, we can be reasonably be confident that current pricing action is not pointing in a recessionary direction. What all this means is that investors are not terribly concerned the political leadership missing the year-end deadline. Investors through their collective pricing actions are telling us not to sweat the deadline too much, as the issue gets a lot more addressable once the tax hikes and spending cuts 'technically' take effect. After all, it will be more politically palatable to cut taxes than to raise them. This is what the market is telling us; let's hope it is right.

Sheraz Mian

Director of Research

To read this article on Zacks.com click here.

Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.