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Fiscal Cliff Negotiations Stall; Jobs Report Better than Expected

Market Digest – Week Ending 12/7

Stocks remained in a narrow band as Fiscal Cliff negotiations again went nowhere. Friday’s jobs report was better than expected, with the headline unemployment number dropping to 7.7%. Apple, America’s favorite stock, fell 8.9% this week as China Mobile announced it will carry Nokia’s new Lumina smartphone and an analyst report predicted share loss in tablets. Gold fell.

Weekly Returns

S&P 500: 1,418 (+0.1%)

MSCI EAFE: (+0.8%)

US 10 Year Treasury Yield: 1.63% (+0.01%)

Gold: $1,704 (-0.6%)

USD/EUR: $1.293 (-0.6%)

Major Events

  • Monday – Republicans countered with their own deficit plan, proposing only half of the tax revenue as Obama.
  • Monday – The ISM factory index showed US manufacturing shrank in November, falling short of expectations.
  • Tuesday – Obama quickly rejected the Republican deficit proposal for not including enough revenue from tax increases on high-income earners.
  • Tuesday – Uniting against Egyptian President Morsi’s recent power grab, protestors in Egypt pushed through cordons and riot police to rally directly outside the Presidential Palace.
  • Wednesday – Contrasting the negative manufacturing report on Monday, the ISM non-manufacturing index showed US services unexpectedly increased in November.
  • Thursday – The European Central Bank reduced its economic growth forecast, with President Mario Draghi not expecting a recovery until the second half of 2013.
  • Friday – US nonfarm payrolls increased ahead of expectations, pushing the unemployment rate to 7.7%.

Our Take

Fiscal Cliff concerns largely overshadowed Friday’s jobs report, but it was an important one. The economy added 146,000 jobs compared to an expectation of around 85,000. Most of the positive surprise came from the private sector, proving Fiscal Cliff concerns are not having an outsized impact on hiring decisions.

Apple’s mostly symbolic announcement that it will manufacture some Macs in the US provides a nice example of how the global economy is always changing. It is a small clue that the US may once again return as the envy of the world.

China’s amazing growth was fuelled by cheap manufacturing labor. Today, China faces higher labor costs and competition from increasingly sophisticated manufacturing machinery. Europe is sinking deeper into recession and has massive structural problems. The US economy is not roaring, but it is growing and appears to have some momentum. An improving housing market, resurgent manufacturing sector, increasing energy production, and technology leadership are all good things for the US looking ahead.

If our elected representatives could look beyond their petty bickering and pass legislation on the portions of the fiscal cliff where they already agree, 2013 could be a very promising year.

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