First, as we come off celebrating the harvest, we hope everyone had a safe and happy Thanksgiving. Unfortunately, the stock market has been anything but festive. Uncertainty in regard to the euro-zone financial crisis, along with the failure of Congress’ Super Committee to come to a debt-reduction agreement, has caused U.S. equities to be quite volatile of late. So far, for the Thanksgiving-shortened trading week, U.S. stocks have performed poorly and, as a result, the Dow Jones Industrial Average, along with the other major indexes, is now down for the year.
Specifically, Europe has been dominating the headlines. Initially, it was Italy and Greece having their problems in fashioning a workable solution to their vexing debt problems; these ills persist. Then, it was Spain where debt yields continue to rise, as that beleaguered nation faces an uncertain future. Finally, the euro zone has been hit by worries about the financial health of Hungary, one of the smaller European Union members, and of France, the second largest of the 17 nations in that ailing international confederation. These issues will surely continue to engulf the Continent, and a number of reforms will be needed in order to resolve the situation. We envision that this ordeal will go on for quite a while, since a quick fix does not seem possible. In fact, we think that a recession has or will soon take hold on the other side of the pond.
On the domestic front, this past Tuesday marked 48 years since President John F. Kennedy was assassinated in Dallas, Texas. Surely, the United States has changed much since that sad day, but those differences may not be more evident than in Congress. Although the two parties have always had their differences, back in President Kennedy’s day, the two sides were typically willing and able to work together to find common ground in an attempt to improve the lives of their constituents, the American people. Now, that appears to simply not be the case. The Wednesday deadline has come and gone, with the 12-member Super Committee failing to come to an agreement in regard to $1.2 trillion in debt reductions. As a result, automatic spending cuts are on track to begin in 2013, with roughly half coming from the Pentagon. In our opinion, this outcome would have been near unthinkable during the years that President Kennedy, and his immediate successors, occupied the Oval Office. What is clear is that this failure will loom large and be a major area of contention from now until the 2012 elections.
As for today, with a good percentage of traders taking an extended holiday, it will likely be a low-volume affair. In addition, bond trading is not open today, while the equity markets will ring the closing bell at 1:00 PM EST. It is also Black Friday, the unofficial start of the holiday season and, more important, the busiest shopping day of the year. As in years past, the big box retailers have been open all night or unlocked their doors in the early morning hours, and welcomed motivated consumers eager to purchase products at steep discounts. Internet purchases will surely be in vogue, as well, since some consumers prefer to avoid the stores, and shop from the comfort of their own homes.
Looking ahead, due to the euro-zone situation and uncertainty on the domestic front, the volatility will probably continue into next week and beyond. In addition, we will receive a number of important economic reports, including new homes sales on Monday; Tuesday brings the Federal Reserve Board’s Beige Book summary; Productivity data on Wednesday and Employment on Friday.
Have a great weekend and enjoy the leftovers. – Ian Gendler
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.