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Home>Daily Capital>Investing & Markets>Focus Shifts from Election to Fiscal Cliff, Economy

Focus Shifts from Election to Fiscal Cliff, Economy

Market Digest – Week Ending 11/9

US elections passed with little surprise, so investors focused their attention back to Europe and the Fiscal Cliff. They didn’t like what they saw, even though little had changed from a week ago. For the three days following the election, the S&P 500 was down 3.4%. Gold and Treasuries rose, likely because the Obama victory leaves the door open for the Fed to continue Bernanke’s aggressively bond purchases.

Weekly Returns

S&P 500: 1,380 (-2.4%)

MSCI EAFE: (-1.6%)

US 10 Year Treasury Yield: 1.61% (-0.11%)

Gold: $1,731 (+3.2%)

USD/EUR: $1.271 (-0.9%)

Major Events

  • Monday – Netflix announced it adopted a poison pill following Carl Icahn’s disclosure that he had acquired nearly 10% of the company. The action allows existing shareholders to acquire more shares.
  • Tuesday – The people of the United States of America elected Barack Obama for another term as President. Republicans retained control of the House, while Democrats added to their majority in the Senate.
  • Wednesday – The European Commission lowered its 2013 growth forecast for the Eurozone from 1% to 0.1%.
  • Thursday – Groupon reported third quarter revenue that missed estimates, sending shares down 24% in after-hours trading. The stock is now down approximately 90% from its first day of trading one year ago.
  • Friday – The Thomson Reuters/University of Michigan’s preliminary index of consumer sentiment for November increased to 84.9 from 82.6 the prior month, ahead of expectations.
  • Friday – President Obama called on Congress Friday to immediately freeze tax rates for most Americans and said he was inviting top lawmakers to the White House next week to discuss how to avoid the year-end fiscal cliff and invigorate a still weak economy.

Our Take

The election unfolded pretty much as we expected. As such, we were surprised to see the sharp sell-off in equities on Wednesday. For those who like to keep track of such things, the 2.4% drop in the S&P was the 5th largest post-election decline. President Obama failed to break his own dubious record from 2008, when the market fell 5.1% after his defeat of John McCain.

The media focused on the Fiscal Cliff, but nothing materially changed in this matter from Tuesday to Wednesday. Our view remains that taxes will go up on January 1st, and some type of compromise will be reached early in 2013. If so, there will be a real impact to the economy, but we expect it to be modest and likely overshadowed by the continuing improvements in the housing market. But there is also risk we are wrong and no compromise is reached–this would be bearish.

Most Americans, us included, tend to overestimate the impact of US politics on the global economy. Most of this week’s losses may actually be attributable to yet another looming round of the Greece debacle. European leaders and the ECB are bickering about who should support Greece. No one wants to shoulder the burden as it is likely the equivalent of throwing money into a black hole. If Greece is eventually forced out of the Eurozone, as we predict, it will cause ripples. However, this possibility is so well known and anticipated that we don’t expect it to have much long-term impact on major stock indexes.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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