EmailStocks took it on the chin yesterday with each of the major averages falling at least 2.3%.
An election hangover received the primary blame for the selling, yet it wasn't a hangover rooted in celebratory excess. Instead, it was a hangover rooted in concerns that the same political complexion (i.e. same president and same split Congress) and bitter political feelings following the election might prevent a fiscal cliff compromise from happening.
Other issues, like weak growth forecasts for Europe, riot scenes in Athens, and continued selling of Apple's (AAPL) stock, compounded the losses.
The fiscal cliff factor, however, overshadowed all else for the simple reason that the market has long believed a compromise is inevitable. New doubts about the likelihood of a compromise that is priced into the market created some newfound angst that precipitated the selling interest.
Notably, House Speaker Boehner made remarks 30 minutes before the close of trading that had the semblance of showing a willingness to compromise.
Listening closely, though, it sounded as if he was asking the president to incorporate the tax reform measures championed by the man the president had just defeated in the election. Moreover, Mr. Boehner placed the qualifier that Republicans would be open to revenue increases if the president cut spending and agreed to entitlement reform.
There was a pickup in selling interest after Mr. Boehner's remarks, suggesting to us that the market wasn't sold on his compromise spirit.
What was clear is that Mr. Boehner does not expect the fiscal imbalance to be addressed during the lame-duck session, even though the conversation about it will, and must, begin.
Selling interest has tapered off the day after the day after. The S&P futures are up about three points and are trading 0.2% above fair value.
That isn't the strongest indication given the scope of yesterday's losses, but a measure of support has been provided by better-than-expected economic data in the U.S., news that Greece's parliament narrowly approved a vote on structural reform efforts, and most likely an expectation for some early bargain hunting.
On the data front, the September trade deficit narrowed to $41.5 bln (Briefing.com consensus -$45.4) from $43.8 bln in August, aided by a $5.6 bln jump in exports that exceeded a $3.4 bln increase in imports.
A good chunk of the import increase ($1.5 bln) was cell phone imports (read: iPhone 5) while the export increase was paced by industrial supplies and materials ($3.4 bln).
The narrower trade deficit in September coupled with the downward revision for August (from $44.2 bln) will lead to a boost in the second estimate for Q3 GDP.
Separately, initial claims for the week ending November 3 declined by 8,000 to 355,000. The claims level was depressed by the effects of Hurricane Sandy, which prevented many people from filing claims.
It should not be surprising, therefore, to see claims increase next week (perhaps by a significant amount) as the opportunity to file claims has improved.
Overall, there doesn't appear to be any major change in trend for initial claims. Continuing claims for the week ending October 27 dropped to 3.127 mln from 3.262 mln in the prior week.
In other developments, both the Bank of England and the ECB held their key lending rates steady today at 0.50% and 0.75%, respectively.
