The market seems to be in a holding pattern as investors wait for more news on the “fiscal cliff” negotiations. After reading President Obama’s first offer, it appears to me that we are back in the Congressional “used car” style of negotiations in Washington. I have been commenting that we may see him move more towards the middle in an effort to put all of his political capital into improving the economy to save his legacy as President.
Over the next three weeks it is very likely they will indeed come to an agreement. Unfortunately, we will have to deal with all the grandstanding commentaries from each side while we wait for an agreement, arguing why the other side is the big problem. In the meantime, economic news continues to support stocks. Jobless claims fell again in November, home sales continue to improve and bank loans are rising. Consumer spending fell in November due to the impact of super storm Sandy but will likely snap back with the rebuilding efforts and Holiday sales are expected to be strong.
We are also concerned that the uncertainty in Washington may be reflected in fourth quarter earnings, which may show a slight drop off in for the quarter due to business spending that was put on hold. We will look to take advantage of any market pullback because growth is likely to accelerate in the first part of 2013 with the rebuilding after Sandy and pent up demand for corporate spending on technology and capital goods. Mergers & Acquisitions are also likely to pick up in 2013 if confidence improves after the fiscal cliff legislation is passed.