EmailThe equity market stumbled yesterday, tripped up by news that Standard & Poor's revised its outlook on the UK to negative from stable and more press conference nonsense from Congressional leaders on the fiscal cliff. It didn't help matters either that the market failed to perk up after the FOMC announced another bond purchase program on Wednesday.
The weakness following the FOMC meeting, and specifically the Fed chairman's press conference, could be a case of selling-the-news. After all, the market had rallied 5.5% between November 15 and December 12. Then again, it might also be a sign that the market is starting to realize that the Fed's monetary policy is failing to make a real economic difference.
More time will be needed to figure out the real take on things, but the reality is that the S&P 500 is down 2.8% since QE3 was announced in September.
There have been some other distractions along the way that could help account for the lackluster response, namely Apple's (AAPL) struggles and the unresolved matter of the fiscal cliff.
Apple has gone over its own cliff, plunging 22% since QE3 was announced. To be sure, Apple's weakness has been a major weight on the broader market given its size and how widely-owned it is.
Lately, the market has acted unconcerned about the fiscal cliff, dismissing boilerplate comments from political leaders and clinging to a belief that a deal will ultimately get done.
The closer we get to the December 31 deadline without a deal, however, the more insecure the market will become. There was a hint of that yesterday as the market faded following remarks from House Speaker Boehner and Senate Majority Leader Reid that indicated more of the same recalcitrance that has prevented a compromise from being struck.
The market perked up a bit in the afternoon on the news that Mr. Boehner was going to meet directly with President Obama last night. All we have heard about that meeting is that the discussions were "frank," which is political-speak for saying they argued and nothing was accomplished.
The latter perspective notwithstanding, the S&P futures are pointing to a flattish open for the cash market.
Most reports are attributing the steady disposition to the support provided by the HSBC PMI reading for China, which hit a 14-month high at 50.9. That sparked a 4.3% gain in the Shanghai Composite, yet gains elsewhere were far more subdued.
Some offsetting influences included the weakness in the US market yesterday, as well as PMI readings for France (44.6), Germany (46.3), and the eurozone (46.3) that were all comfortably below 50.0, which is the line of demarcation between expansion and contraction.
Separately, the Consumer Price Index for November followed form with the Producer Price Index. Total CPI declined 0.3% (Briefing.com consensus -0.2%), driven by a 7.9% drop in the gasoline index. Core CPI, which excludes food and energy, increased 0.1% (Briefing.com consensus 0.1%).
Over the last 12 months, total CPI has increased 1.8% (versus 2.2% in October) while core CPI has risen 1.9% (versus 2.0% in October). The takeaway for the Fed at least is that inflation is being held in check. Actually, the November report reveals a trend of disinflation that runs counter to the Fed's efforts to spark inflation.
The S&P futures have slipped a bit in the wake of the CPI report.
Industrial production data for November (Briefing.com consensus +0.3%; prior -0.4%) will be released at 9:15 a.m. ET.
