Looming Fiscal Cliff, European Recession and Mideast Violence Pull Stocks Lower

in Market Commentary by

Market Digest – Week Ending 11/16

Fears surrounding the Fiscal Cliff, official recession in Europe, and violence in the Middle East pulled stocks down for a second straight week. Apple, which plays a critical role in the performance and sentiment of so many fund managers and individual investors, is down about 25% from its September peak. The S&P 500 is down around 7% in the same period. Treasuries rose this week, receiving a boost from Fed minutes revealing support for expanding asset purchase programs. Gold fell.

Weekly Returns

S&P 500: 1,360 (-1.4%)

MSCI EAFE: (-1.3%)

US 10 Year Treasury Yield: 1.58% (-0.03%)

Gold: $1,713 (-1.0%)

USD/EUR: $1.274 (+0.2%)

Major Events

  • Monday – Microsoft’s Halo 4 took in more than $220 million on its first day on sale.
  • Monday – Jefferies Group agreed to sell itself to Leucadia for $2.48 billion.
  • Tuesday – The David Petraeus adultery probe widened as Obama put on hold his nomination of Marine General John Allen as commander of the North Atlantic Treaty Organization. General Allen is accused of sending inappropriate emails with a Florida woman.
  • Wednesday – Israel killed Hamas’s military leader on the Gaza Strip and threatened to send in ground troops if rocket attacks continue.
  • Wednesday – Minutes from the October Fed meeting revealed that some officials support expanding bond purchases after the expiration of Operation Twist at the end of December.
  • Thursday – Q3 GDP for the Eurozone contracted 0.2%, officially entering recession.
  • Friday – Tension in the Middle East rose as Hamas missiles landed near Jerusalem and Tel Aviv, and Israel extended its bombing of the Gaza Strip.
  • Friday – House Speaker Boehner said he had constructive talks with Obama on the budget and would accept government revenue increases coupled with spending cuts. Stocks rose.

Our Take

Being Chairman of the Federal Reserve is a tough job.

Last February, in an attempt to get Congress to act on upcoming tax increases, Mr. Bernanke coined the term “Fiscal Cliff”. Since then, he has been pulling out all the stops in an effort to drive up housing prices and the stock market. Now it seems the simple phrase itself may be responsible for at least part of the recent market declines.

We suspect the current level of fear would be much lower, and the selling pressure reduced, if the media was discussing the impending “deficit reduction package” instead of the “Fiscal Cliff”.

Friday, President Obama met with congressional leaders including House Speaker Boehner. They deemed the talks “productive”. Every elected politician in Washington knows the American people want action and compromise, but their recent track record is not encouraging. We continue to believe little will be accomplished to avert the Fiscal Cliff before New Year’s. But we still see potential upside as compromise is reached next year and investors realize worries about the cliff are exaggerated.

The following two tabs change content below.
Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

Leave a Reply

Your email address will not be published.

Disclaimer. This communication and all data are for informational purposes only and do not constitute a recommendation to buy or sell securities. You should not rely on this information as the primary basis of your investment, financial, or tax planning decisions. You should consult your legal or tax professional regarding your specific situation. Third party data is obtained from sources believed to be reliable. However, PCAC cannot guarantee that data's currency, accuracy, timeliness, completeness or fitness for any particular purpose. Certain sections of this commentary may contain forward-looking statements that are based on our reasonable expectations, estimate, projections and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not a guarantee of future return, nor is it necessarily indicative of future performance. Keep in mind investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.