Publishing Note: I have an early commitment Thursday morning and will not publish a report. Daily State of the Markets will return on Friday.
Good Morning. Unfortunately, we've got one of those good news/bad news situations to deal with this morning as we attempt identify the drivers of the current stock market action. And since I admit to being a card-carrying member of the glass-is-at-least-half-full club when it comes to my outlook on both life and the markets, I'll start with the positive.
The good news is that the U.S. stock market no longer appears to give a hoot about Greece. I don't know about you, but for me this was a very long time in coming and I am thrilled that I don't have to try and learn how to pronounce the names of any more politicians from Athens. You see, for the umpteenth time, we got word Monday night that Greece was saved as the "troika" had come to an agreement to both magically wipe out €40 billion in Greek debt and lend the debt-ridden vacation spot another €44 billion to cover some bills. While the logic here is a bit baffling and it is clear to anyone with a functioning calculator the Greece is bankrupt, the good news is that stocks in the U.S. just didn't care about the latest and greatest Eurogroup decision.
While European bourses did manage to rally on the relief that they wouldn't have to endure yet another deadline relating to Greece, the U.S. futures basically yawned at the news. As such, I'm going to call it right here, right now ... Time of death on the Grexit watch: November 27, 2012, 09:30.
However, as you are no doubt aware by now, there is a "but" coming this fine Wednesday morning. While traders and their fancy computers are no longer hanging on every headline, deadline, comment and/or rumor from across the pond, there is unfortunately a new issue to focus the algorithms on. And if the words "fiscal cliff" come to mind right about now, give yourself a gold star.
Although stocks did blast higher each and every day last week, I went on record a time or two suggesting that the bulls might want to curb their enthusiasm due to the fact that our elected politicians (yep, let's face it folks; the mess in Washington is OUR fault now) were returning to the beltway this week. As such, I figured that we might see some "negotiating in the press" by the two sides as neither team wants to appear to be too conciliatory with so much time left on the clock (the last time I looked, the Cliff Clock read 34 days, 6 hours and 33 seconds).
Sure enough, now that the turkey has been digested and love fest in the Rose Garden is history, the two sides started to do some jawboning on Tuesday. Things got ugly pretty quick yesterday as Senate Minority Leader Mitch McConnell (R-Kentucky) didn't mince words as he spoke on the Senate floor about President Obama. "Rather than sitting down with lawmakers of both parties and working out an agreement, he's back out on the campaign trail," the Republican from Kentucky said.
McConnell went on to say, "We already know the president is a very good campaigner. What we don't know is whether he has the leadership qualities necessary to lead his party to a bipartisan agreement." Ouch.
Since this was the first bit of public discord on the subject of the cliff we've heard recently, traders assumed there would likely be a rebuttal and stocks were sent lower. And anyone betting on a response from the other side of the aisle wasn't disappointed. Although it took a couple of hours, Senate Majority Leader Harry Reid (D-Nevada) said that he was disappointed that there has been "little progress" over the past 10 days toward finding a solution to the fiscal cliff.
In a frustrated tone, Reid told reporters outside the White House Tuesday afternoon, "They talked some happy talk about doing revenues, but we only have a couple weeks to get something done ... So we have to get away from the happy talk and start talking about specific things." Uh-oh.
The stock market's reaction was swift and it is now blatantly obvious that there are algorithms programmed to find just such words coming out of politicians' mouths. The S&P 500 dove about 8 points or 0.5% after Reid's comments, with the majority of the move coming in about 6 minutes.
In sum, the primary purpose of my meandering morning missive is to identify the drivers of the market action. And based on what I saw in the markets yesterday, the drivers are pretty darn clear right now. But I guess the good news is that we've only got 21(ish) more trading days of this to endure.
Turning to this morning ... The negative sentiment surrounding the outlook for an orderly resolution to the fiscal cliff is expanding this morning as markets around the globe are in the red at this time. Not surprisingly, U.S. futures are following suit and currently point to a decline of nearly 5 points on the S&P 500.
Major Foreign Markets:
- Shanghai: -0.86%
- Hong Kong: -0.62%
- Japan: -1.22%
- France: -0.32%
- Germany: -0.20%
- Italy: -0.48%
- Spain: -0.95%
- London: -0.18%
- Crude Oil Futures: -$0.67 to $86.51
- Gold: -$7.60 to $1734.70
- Dollar: higher against the yen, euro and pound
- 10-Year Bond Yield: Currently trading at 1.616%
Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: -4.64
- Dow Jones Industrial Average: -24
- NASDAQ Composite: -6.12