Convince Me Differently
Throughout much of 2012, I offered both within blogs and quarterly commentary that I expected President Obama to win a second term. I also offered my concern that we would awaken on November 7, to find one of two conditions: 1) an uncertain outcome or 2) the status quo. Unfortunately, it appears we have the second.
At a time when the fiscal condition of the United States demands anything but gridlock, the status quo – same president, same party control of the House and Senate – concerns me. It is now imperative that D.C. policy makers send a message to global capital markets that this time will be different. The same cast of characters that initiated an embarrassing August 2011 debacle for the markets must convince us differently. The clock has turned on. I expect the dialogue and real business related to the fiscal cliff to quickly begin in the weeks ahead of Thanksgiving. The week before Christmas really is the deadline for a fiscal cliff compromise.
For the markets, I expect the onus is still on bullish forces to reverse the current correction. The 200-day moving average at 1380.00 for the S&P 500® Index (SPX) (Figure 1.1) appears to be where the market wants to head. Also keep in mind that I expect the conversation to intensify regarding year-end selling. Now facing a tax rate climate set to rise, we draw the analogy to December 1969 (Figure 1.2) and December 1986 (Figure 1.3). In each of those instances, the market experienced a December sell-off as a rise in tax rates approached in the coming new year.
On Monday, I stated during CNBC’s Halftime show that President Obama is a friend to the bond market. This morning’s 1.6458% 10-year Treasury print certainly validates my point. With rates remaining depressed and corporate balance sheets strong, investors should remain overweight taxable fixed income and seeking new investment opportunities.
Unless D.C can “CONVINCE ME DIFFERENTLY,” why should the status quo behave any differently than they have in the past?
Figure 1.1 S&P 500 Index (SPX)
Figure 1.2 Dow Industrials 1969-1970
Figure 1.3 Dow industrials 1986-1987