EmailWhen Israel kills a senior Hamas leader and provides video of it for the world to see; when half of Europe holds a strike to protest austerity measures; and when the president and House GOP leaders make it sound like they are willing to compromise on the fiscal cliff so long as the other side agrees to their strongly-held beliefs, well, it gets a little difficult for investors to show much confidence in the market outlook.
In a nutshell, those three factors were primary catalysts for yesterday's broad-based decline that saw the S&P 500 drop 1.4% and close at a four-month low.
The fiscal cliff issue is the focal point for market participants, yet there is so much more -- or perhaps we should say less -- than the fiscal cliff that meets the eye.
We made the latter point in this week's Big Picture, More of the Same Equals Less, calling attention specifically to the reality that the more things have changed, the more they have stayed the same. And more of the same at this point equals less for the stock market.
- The eurozone is still a mess. That was evident in today's report that showed Q3 GDP declined 0.1% after declining 0.2% in Q2.
- China has new leadership, but there is ample reason to think in the midst of China's slowdown and the global slowdown that China's new leaders will continue to endorse self-serving policies that keep trade and geopolitical tensions high.
- Earnings growth is decelerating; earnings warnings are picking up; and weak revenue growth reflects weak aggregate demand.
- The election is over, yet partisan politics are still shining through in tax policy comments from officials with a seat at the bargaining table
Carrying through with today's theme, we see more of the same on the economic front.
Inflation is not an issue. CPI was up 0.1% in October while core CPI, which excludes food and energy, was up 0.2%. The year-over-year increases for those two measures are 2.2% and 2.0%, respectively, which is within the Fed's comfort zone.
Initial claims for the week ending November 10 spiked to 439,000 from 361,000. That was well above the Briefing.com consensus estimate of 388,000; however, the spike was largely a function of the distortion created by Superstorm Sandy. With power restored and flooding subsiding, applicants who couldn't file for unemployment insurance in the immediate aftermath of the storm were able to do so in the latest week.
In all likelihood, claims will settle back into the 350,000 to 400,000 range in the next week or so. That is, we should see more of the same in short order.
The Empire Manufacturing Index reading for November was -5.2 (Briefing.com consensus -8.5) versus -6.2 in October. The pace of contraction in that manufacturing region may have slowed, yet it is still more of the same: contraction (fourth straight month). On the bright side, the new orders index moved above zero for the first time since June with a slightly positive reading of 3.1.
Today's earnings calendar has been dominated by the retailers, most of whom surpassed consensus earnings estimates, including Wal-Mart (WMT). That is more of the same in a good way, but cautious-sounding guidance from several retailers (Limited, Children's Place, Williams-Sonoma, and Wal-Mart) lessened the impact of the good earnings news.
As it stands now, the S&P futures are trading 0.2% below fair value. That is more of the same bias that has persisted for many weeks now, which means less for the stock market when trading begins.
