Markets swing on fiscal cliff negotiations
The direction of political negotiations in Washington to avert the fiscal cliff was the main driver behind North American stock market movements this week.
On Wednesday alone, the Dow notched an intraday swing of more than 200 points – losing more than 100 in the morning and ending plus 100 at close – as the read on negotiations moved from negative to positive. The markets are expected to continue see-sawing as Democrats and Republicans float proposals to deal with the series of tax cuts and spending increases due to go take hold January 2013.
Almost obscured from view were US economic numbers which were biased to the upside over the four-day period covered in this report. Durable goods orders – a sign of business confidence – were better than expected for October, a much-watched home prices index rose for the sixth consecutive month and the all-important consumer confidence gauge increased to its highest level since February 2008. And on Thursday, a revised US GDP number for Q3 came in at 2.7% versus an initial read of 2%. The near three-quarter percentage point upward revision was anticipated by economists, which tamped enthusiasm. Enthusiasm was further tempered by expectations for lower Q4 growth primarily due to Hurricane Sandy.
Greece, meantime, dodged another bullet as euro-zone finance ministers came to agreement to fund its near-term debt with another tranche of new money. But more tough decisions lie ahead as the country’s economy continues to deteriorate making it near impossible to cut into its mountain of debt.
Lots of action, little progress
Markets were little changed over the four-day period despite the gyrations up and down. In Canada, the TSX shed 11 pts. from Monday open through Thursday close to end at 12,202. It was a similar story south of the border where the Dow rose 12 pts. to close at 13,021 and the S&P 500 moved 6 pts. to finish at 1,409.
Look through the fiscal cliff debate and buy equity market weakness
- Equities. Steve Uzielli, Portfolio Manager, Portfolio Advisory Group wrote: “our investment thesis is supported by improving U.S. economic momentum, including better than expected corporate profits for Q3, which supports our pro-equity bias. We continue to recommend buying on instances of negative headline-driven equity market weakness.”
- Fixed income. Andrew Mystic, Associate Director, PAG, suggests “given the Bank of Canada’s recent tone, investors should begin to re-evaluate the duration of their portfolios - particularly given the relatively low rate environment and its potential impact on value if rates reverse course. Term Call – we no longer see value in the mid-to-long end of the curve and recommend investors stay short at this time. Sector Call – underweight Canada, overweight Municipals, Provincials and Corporates. Currency Call – we recommend Canadian investors remain in Canadian dollars for their fixed income holdings. Alternative Strategies – marketweight high yield, marketweight Emerging Markets Debt, underweight inflation protected debt.”
- Portfolio strategy. Scotiabank GBM Portfolio Strategist Vincent Delisle says: “U.S. growth should accelerate as we enter 2013 based on the housing renaissance, energy boom, and rising exports.”
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