Stocks started the first full week of trading for the new year on a down beat as there was not much in terms of fundamental economic drivers and as investors are now beginning to be shaken by the newest battle in Washington over debt and spending, that is the debt ceiling debates.
While we are still in the early stages of the of the Debt Ceiling fight, we see a similar situation developing to that experienced during the Fiscal Cliff fiasco. More than likely the debt ceiling will be raised as, once again, we do not believe anyone will be that insane as to let the U.S. default on its debt. However, we do expect this to be a contentious battle, which will once again shake the market in both directions.
We should also note that tomorrow marks the start of earnings season, where companies will, for the most part, begin reporting their financial performance achieved in the final quarter of 2012. And of course, as tradition dictates, Alcoa Inc.'s financial results will officially demark the start of the earnings season after it reports tomorrow after the closing bell. While we had been looking forward to most earnings seasons last year, this year we are concerned that earnings results will be overall less than expected. As it stands, earnings growth estimates for the S&P 500 have been ramping lower for the fourth quarter, to 2.7 percent from 9.2 percent. However, even more concerning will be what outlooks for the first quarter of 2013 will be. As it stands, S&P 500 forecasts for the first half of the year have also been coming down significantly, with growth forecasts for the first quarter dropping to 2.5 percent from 5.3 percent, and with second quarter growth estimates declining to 6.7 percent from 9.1 percent.
On the other hand, while stocks as a whole are likely to take a hit this earnings season, we believe there will be great opportunities to pick up stocks that will be unjustly devalued. At the moment we still see the economic fundamentals holding firmly and expect the U.S economy to continue making modest gains in 2013.