EmailThe equity market started on a strong note yesterday but ended on a weak one as the major averages suffered modest losses and closed near their lows for the day. An ism and a schism were catalysts for the reversal of fortune.
Briefly, the market was underpinned at the start of trading with buying interest that is often see at the beginning of a new month. Those buying efforts tapered off, however, following the November ISM Index.
The latter is a national survey of manufacturing activity and it slipped below 50 (49.5), which is the demarcation point between expansion and contraction.
The Briefing.com consensus estimate was 51.2, so the ISM number was a negative surprise to the market. In turn, it was also an excuse to take some profits from a short-term overbought market, which had risen nearly 5.0% over the previous 10 trading sessions.
The November ISM reading marked the lowest level since July 2009, although Superstorm Sandy added some weight to the headline number. Some pent-up manufacturing activity should help things along for the December report. We don't expect to see a sizable gain for December, but a second consecutive monthly contraction is unlikely.
November motor vehicle sales, on the other hand, were very strong, running at a seasonally adjusted annual rate of 15.6 mln versus 14.3 mln in October. That was the best month of sales since December 2007. That should bode well for next week's Retail Sales report and factor favorably in Q4 GDP estimates.
Still, the market was unmoved by the strong motor vehicle sales figures, offering some evidence that yesterday's selling had a profit-taking edge to it.
Things weren't helped along with afternoon reports detailing the GOP plan for addressing the fiscal cliff. That plan calls for $2.2 trillion in deficit savings over the next ten years. The core planks include $800 bln in revenue increases achieved through tax reform, $600 bln in spending cuts, and $600 bln in savings that originate from Medicare reform.
The GOP plan is comparable to the one it advanced during the deleterious debt ceiling negotiations. It has already been panned by Democrats and the White House as "unbalanced" and basically D.O.A since it does not include an income tax increase for the top 2% of taxpayers.
Both parties have at least shown their hand in the fiscal cliff debate, but obviously there is still quite a schism between the parties. The key now is whether these plans will be used as a jumping off point to reach a compromise or whether they will ultimately be a jumping off point from the cliff to a likely recession.
The market didn't seem all that pleased with the idea of status quo.
There isn't any economic data today, although we continue to hear a rash of special dividend and accelerated dividend announcements in front of the December 31 fiscal cliff deadline.
The dividend announcements are helping some, yet the cash market is indicated top open slightly lower today.
