Today was an inauspicious start to December. Based on positive pre-opening behavior from Europe, including a number of positive PMI’s (purchasing manager indices), as well as a positive November PMI of 52.8 from our own economy (up from 51.0 in October), our domestic markets opened up about 0.5%. But the markets went “south” from that point, including most of the European bourses, although all but the IBEX 35 closed up for the day. Why?
For one thing the strength of the PMI number seemed to be contradicted by the ISM reading, released an hour later. The ISM survey saw increasing inventories and the first monthly contraction for their employment figures in the last three years. Whether or not the contrast between these two reports could be related to the effects of Sandy is all but impossible to know. At best, they indicate nothing positive together--or at least that was the market’s response.
Later in the day but well before closing, the GOP leaders led by Boehner sent a formal letter to the President that refused tax increases on the wealthy and once again failed to provide specifics on the deduction limits that they claim will generate $800 billion in new revenue. It also insisted on Medicare reform, state-administration of Medicaid, and renewed demand for health care reform.
In short, no clear revenues and no plausible spending cuts were defined. I am politically independent, but I am shocked at the indifference both sides have to giving us some comfort that they will work together to get the fiscal cliff issues solved. No they say. Better to send letters and respond on Twitter. Unbelievable. The market reacted as you would expect. Indeed, the world’s markets responded with predictable disgust as the market sharply sold off from about 7 S&P 500 points up to down about the same amount. Had the European markets not closed earlier, they would likely have gone into the red as well as they closed in a near free fall.
It is inconceivable that the elected congress will treat the very people who elected them this way with the fiscal cliff staring us in the face. These folks must have spent the weekend watching football. It is doubtful that the average voter was aware of exactly what was transpiring.
This means extreme caution for the markets. Too many are watching. Too many are angry. Maybe that is why the leading style/cap last week was small caps. Small caps stocks are not as affected by world events or by the crush of regulatory issues that are likely to result from this standoff; small-cap companies are also not as likely to be throwing millions of lobbying dollars at our “esteemed” politicians. They can just keep their heads down, build their products, provide their services and pray that somehow the flotsam and jetsam don’t land on them. And it really doesn’t matter much what sector they are in.
Here are the Market Stats
3 Stock Ideas for this Market:
This week I selected three highly ranked stocks from Sabrient’s universe with great value and exiting growth prospects for you to consider because we think this is what the market wants.
- Delek US Holdings, Inc. (DK) – Energy
- MagnaChip Semiconductor Corp (MX) – Technology
- Cirrus Logic, Inc (CRUS) – Technology
David Brown is the CEO, Founder, and Chief Market Strategist from Sabrient Systems, an independent equity research firm that specializes in alpha extraction through quantitative and qualitative analysis.