U.S. equities, ETFs seek higher ground as December
starts and investors wonder if Santa will show up for the traditional
year end “Santa Rally”
U.S. equities and ETFs were mostly flat on Friday as November drew to a close.
For the week, the Dow Jones Industrial Average ETF (NYSEARCA:DIA) gained 0.1%, the S&P 500 (NYSEARCA:SPY) added o.5% for the week and the Nasdaq 100 ETF (NYSEARCA:QQQ) added 1.4% from last Friday’s close. The Russell 2000 (NYSEARCA:IWM) also put in a good week with a gain of 2.1%.
For November, the Dow Jones Industrial Average (NYSEARCA:DIA) declined 0.5%, the S&P 500 (NYSEARCA:SPY) gained 0.3% and the Nasdaq Composite (NYSEARCA:QQQ) added 1.1%.
On My ETF Radar
chart courtesy of StockCharts.com
In the chart of the S&P 500 (NYSEARCA:SPY)
above, we can see how the index has reclaimed its 200 day moving
average and broken through resistance at the 1400 level which has been a
major battleground for the last few weeks. Next major resistance
levels are at the blue 50 day moving average and recent highs between
1430-1460, with the upper band just 3% from today’s levels.
The S&P 500 ETF (NYSEARCA:SPY)
will have to break through these levels to reestablish its uptrend,
however, the index has already reclaimed most of the ground lost since
the beginning of the correction in early October.
As we enter December, the topic of the seasonal “Santa Rally” comes
into view and the fiscal cliff could put Santa in jeopardy this year
which could be bad news for stocks and ETFs because as famed investor
Yale Hirsch said, “if Santa fails to call, bears may come to Broad and
Wall.” Read Santa Claus Jeopardy!
ETF News You Can Really Use
The fiscal cliff continues making daily headlines and we can expect
more volatility and jousting around that subject during the upcoming
week. It was the major topic of discussion on the Sunday talk shows as
Treasury Secretary Timothy Geithner said tax increases for the top 2%
of Americans were mandatory for a deal on the fiscal cliff.
Geithner said Republicans in Congress will be responsible for hurting
the economy if they refuse to raise tax rates on the highest-income
earners as part of a deal. He challenged the Republicans to not raise
taxes on most Americans to protect the top 2% and Speaker of the House
John Boehner said negotiations were getting nowhere, describing the
situation as a “stalemate.”
Most stock and ETF investors still expect a deal to be reached,
however, both sides appear to be digging in around their sacred cow
issues of tax hikes for the top 2% and government spending cuts,
particularly in the area of entitlements. So while big stock and ETF
investors expect a settlement, clearly the chance of “going over the
cliff” grows with each passing day.
President Obama is looking for more than $1.5 trillion in tax hikes,
along with spending cuts, while Republicans are pushing for spending
cuts in Social Security and Medicare, along with tax reform.
Farther down the road, lies another round of contentious negotiations
over raising the debt ceiling which was an unhappy exercise in 2011
that resulted in setting the stage for this month’s fiscal cliff debate.
Twenty nine days remain to the fiscal cliff, however, even more
pressing is the fact that just 8 days are on the calendar when both
houses of Congress are in session between now and the start of the
Christmas recess on December 17th.
In other news, the European Union kicked the can farther
down the road regarding Greece, giving the beleaguered island nation
until 2020 to reduce its debt to 120% of GDP. The country will try to
buy back its own bonds starting on Monday, December 3rd, and so the
“Greek Tragedy” continues with high unemployment and a severe recession.
Late Friday in little reported news, Moody’s downgraded the European
Stability Mechanism and European Financial Stability Facility, the two
main bailout funds for Europe, and this could put more pressure on the
Euro (NYSEARCA:FXE) which has recently been in rally mode.Read Additional Downgrades Could Follow
In the United States, economic reports were mostly positive as Q3 GDP
was revised upwards to 2.7% and the Richmond and Chicago PMI reports
moved into expansion territory. The housing market also posted some
positive economic reports with the Case/Shiller Home Price Index rising,
pending home sales up and consumer confidence gaining a fraction.
On the downside, jobless claims came in higher than expected and the
Fed regions covering Dallas and Kansas City reported those regions in
Personal spending fell 0.2% in October, the first decline since last
spring, and income was stagnant and still suffering the effects of
Hurricane Sandy, while new home sales missed expectations.
Next week brings a storm of important data including ISM and
construction spending on Monday, ADP employment and factory orders on
Wednesday, weekly jobless claims on Thursday and the all important
November Non Farm Payroll and Unemployment reports due Friday, all of
which could move stocks and ETFs.
Bottom line: Market participants appear to want to push major
U.S. stocks and ETFs higher to close the year, however, going over the
fiscal cliff could derail the widely anticipated Santa Rally.
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12-02-2012 6:53 PM