Broadgate: Market News 3/12
3 December 2012
The S&P 500 wrapped up its fifth positive month in the last six on Friday, although it ended the day flat as politicians remain at odds about how to avoid the so-called fiscal cliff.
Trading has been choppy in the last two weeks as investors react to statements from policymakers on the state of discussions on how to avert a series of tax hikes and spending cuts that could pull the economy back into recession.
The S&P 500 was up 0.29 percent in November even as it suffered a slide of more than 6 percent from the month’s high to its low.
“Given the ‘on again, off again’ fiscal cliff (negotiations), it’s rather surprising how resilient this market has been,” said David Rolfe, chief investment officer at St. Louis-based Wedgewood Partners.
“Between now and the end of the year, there’s going to be an information vacuum outside the fiscal cliff, and I believe that resiliency will be tested.”
In contrast to the apparent calm in equities, the CBOE Volatility Index (VIX), a gauge of market anxiety, jumped 5.4 percent, its largest daily gain in two weeks.
The VIX also rose for the week, but posted a whopping 14.7 percent decline for November.
On Friday, President Barack Obama accused a “handful of Republicans” in the U.S. House of Representatives of holding up legislation to extend tax cuts for middle-class Americans in order to try to preserve them for the wealthy.
Speaking shortly after the president, House Speaker John Boehner, an Ohio Republican, said: “There is a stalemate; let’s not kid ourselves.”
Despite the divisive language, many market participants are betting that a deal will be struck – if only at the eleventh hour.
Corporations continue to react to what is expected to be a harsher tax regime next year. Whole Foods Market was the latest to announce a special cash dividend – of $2.00 per share in this case – ahead of expected higher tax rates in 2013.
The Dow Jones industrial average rose 3.76 points, or 0.03 percent, to 13,025.58 at the close. The S&P 500 gained a mere 0.23 of a point, or 0.02 percent, to finish at 1,416.18. But the Nasdaq Composite Index dipped 1.79 points, or 0.06 percent, to end at 3,010.24.
For the month of November, the S&P 500 rose 0.29 percent, its smallest monthly variation since March 2011. The Dow fell 0.5 percent and the Nasdaq gained 1.1 percent.
For the week, though, all three major U.S. stock indexes advanced, with the Dow up 0.1 percent, the S&P 500 up 0.5 percent and the Nasdaq up 1.5 percent.
VeriSign shares dropped 13.2 percent to $34.15 after the company said the U.S. Department of Commerce approved its agreement with ICANN to run the .com internet registry, but VeriSign won’t be able to raise prices as it did before.
Yum Brands slid 9.9 percent to $67.08 a day after the parent of the KFC, Taco Bell and Pizza Hut chains said it expects a drop in fourth-quarter sales at established restaurants in China.
After a close relationship for several years, Facebook and Zynga revised terms of a partnership agreement, according to regulatory filings on Thursday. Under the new pact, Zynga, creator of the “Farmville” game, will have limited ability to promote its site on Facebook.
Zynga’s stock fell 6.1 percent to $2.46. Facebook’s stock gained 2.5 percent to $28.
Apple Inc’s latest iPhone received final clearance from Chinese regulators, paving the way for a December debut in a highly competitive market where the lack of a new model had severely eroded its share of product sales. Apple’s stock fell 0.7 percent to $585.28.
The markets’ reaction to data on Friday was muted.
U.S. consumer spending fell in October for the first time in five months and income growth stalled, leading some economists to cut already weak estimates of fourth-quarter economic growth.
Slightly more than 7 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, more than the daily average so far this year of about 6.48 billion shares and the largest in two weeks.
On the NYSE, roughly six issues rose for every five that fell, while on Nasdaq, the ratio was nearly 1 to 1.
The euro rose to its highest in more than five weeks against the dollar on Friday, posting its fourth straight month of gains as investors clung to hopes that U.S. politicians would reach a fiscal deal before the end of the year.
The yen slumped and registered its worst month since February against the dollar on speculation that a likely change in Japan’s government would lead to aggressive monetary easing. Speculators boosted their bets against the yen to the highest since May, 2007.
For the past few weeks, financial markets have traded on headlines from U.S. political leaders on the “fiscal cliff,” tax hikes and spending cuts worth $600 billion set to kick in early next year that could hurt the economy.
U.S. House of Representatives Speaker John Boehner said Republicans and President Barack Obama are locked in a stalemate. Obama blamed Republicans who control the House for holding up a deal.
“The market is sort of anticipating that some kind of a compromise will be reached before December 31. That’s the mindset of the market right now,” said Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank in New York.
The euro rose 0.2 percent to $1.3001, having earlier touched $1.3027 on Reuters data, its strongest level since October 23. Traders reported offers at $1.3040-50.
For the month, the euro rose 0.3 percent against the dollar.
German lawmakers on Friday approved the latest Greek bailout by a large majority, also helping euro sentiment. But the outcome was widely expected.
Gains in Europe’s shared currency came despite weak data that included a sharp drop in German retail sales, a fall in French consumer spending and record-high unemployment for the euro zone.
The gloomy economic outlook for the euro zone should limit further strength in the euro, analysts said.
“With unemployment still sitting at 11 percent in the euro zone and inflation at just 2 percent, I can’t see how the euro can move up from here, other than people looking at an alternative to the dollar,” said Chris Gaffney, co-chief investment officer at Everbank Wealth Management in St. Louis.
The euro dipped to session lows against the dollar after weak U.S. personal income and spending data. The data dented the market’s risk appetite as investors sought the dollar for its safety appeal.
“The disappointing data has dampened the modest enthusiasm that major economies are gaining strength,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. “The report also reinforces the fact that U.S. growth in Q4 would be weak.”
The dollar rose 0.5 percent to 82.51 yen, close to a near eight-month high of 82.82 yen hit last week. It was on pace for a gain of 3.4 percent in November, the biggest since February.
The euro rose 0.6 percent to 107.19 yen. Earlier it climbed to 107.66, its highest since late April. Traders cited month-end demand for the euro from Japanese importers.
In November, the euro rallied 3.7 percent, the best month since June against the yen.
Although Japan’s main opposition leader, Shinzo Abe, a front-runner to become the new prime minister, seemed to have softened his aggressive stance on Bank of Japan independence, he did reiterate his desire for the bank to buy foreign bonds.
“The market is gearing up toward the December 16 election,” said Eliasson. He said with growing expectations of further easing, the dollar could rise further, to 85 to 87 yen, if the election goes as expected.
The dollar index ended the month of November up 0.3 percent after three straight months of losses.
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