Month: September 2012

‘Zombie economy’ may give markets a scare in October

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Traders expect October to give the markets a scare, starting with news on the economy and jobs in the week ahead.

After a surprisingly good performance in the third quarter, the thinking is the stock market is ready to pull back, especially after a few choppy sessions and a new batch of data that should continue to show a slow-moving, ‘zombie like’ economy. Stocks logged the best third quarter performance since 2010. For the quarter, the Dow surged 4.32 percent and the S&P 500 soared 5.76 percent.

The coming week could provide plenty of excuses to take profits, beginning with Monday’s ISM manufacturing data, again expected to show weakness in the sector.

Manufacturing reports from China, over the weekend, and from Europe, also Monday, will provide a look at just how sluggish global activity has become.

Friday’s jobs report is expected to show the low level of job creation continued in September, after August’s 96,000 nonfarm payrolls. The US election is also a focus this week, with the first presidential debate in the tight race Wednesday evening.

“I think the overarching thing is it’s the new quarter. What’s it mean? Did we experience any window dressing? It doesn’t feel like it to me,” said Art Hogan of Lazard Capital Partners. “To me, there’s more downside risk than upside risk.”

“I’m not sure what the catalyst is going to be, but we’re due,” said Hogan.

Counterbalancing the disappointing economic news has been the willingness of global central banks to take action, and the Fed’s quantitative easing program is expected to provide a floor for the market if it does start to correct.

Of interest will be Fed chairman Ben Bernanke’s comments Monday on the economy before the Economic Club of Indiana. The European Central Bank also holds a rates meeting Thursday, and while it is not expected to act, ECB President Mario Draghi will hold a briefing afterwards.

“Because of quantitative easing and we know the Fed’s going to be doing QE for a while, I think that takes some of the sting out of the economic data,” said Marc Chandler, chief currency strategist at Brown Brothers Harriman. The Fed’s latest program is open ended and takes aim at the housing market, with the purchase of USD 40 billion in mortgage securities per month.

Chandler said he expects the dollar to gain some traction, around the economic data this week, and because of Fed easing. “We’re moving to a ‘risk off’ environment,” he said.

While the data has been disappointing, some of it has not, including housing and some consumer-related readings. University of Michigan consumer sentiment, for instance, was revised down from 79.2 to 78.3 in the final September report, but interestingly, the expectations of consumers rose, and consumer confidence, reported in the past week, also improved.

“I think the auto sales next week could be kind of interesting. We do have strong auto sales. They’re probably closer to the average for the full year. We haven’t seen deterioration yet. The personal consumption data is still holding up pretty well,” Chandler said.

Auto sales are reported Tuesday. Truecar.com expects car sales rose 11 percent from last year to 1.2 million, for a seasonally adjust selling rate of 14.6 million compared to 14.5 million in August.

The jobs number could also show these mixed economic messages—a weaker manufacturing sector and a consumer showing some signs of life. Retail hiring, for instance, could add to the jobs number, putting it at about 130,000 for the private sector, according to Diane Swonk, chief economist at Mesirow Financial.

“Retailers are hiring but we’re going to be losing some Wall Street people by the end of the week. There’s going to be some cross currents,” she said. The Chicago teachers’ strike, now resolved, could also have impacted the number by about 20,000, she said. Swonk expects total nonfarm payrolls, including public sector layoffs, to total 110,000.

She also sees third quarter growth at a soft 1.6 percent, after second quarter revisions in the past week showed that period grew at just 1.3 percent.

Wells Fargo institutional equity strategist Gina Martin Adams said she is actually more interested in the ISM manufacturing number than jobs this week. “I’ve been more focused on the ISM report just because the manufacturing sector seems to be at the leading edge of the decline,” she said.

“I’m looking for a positive ISM to be one of the signs of a turnaround…I don’t think we’ll get it next week,” she said. The reading was 49.6 last month, and a number below 50 shows contraction.

“I think jobs are important to the economic landscape but maybe just simply because the Fed is going to back stop until they improve,” said Adams.

Edging Toward Fiscal Cliff

The outcome of the election and the resulting handling of the so-called “fiscal cliff” are seen as keys to the performance of markets in the fourth quarter, and to the economic outlook.

Fiscal cliff is used to describe the double whammy to the economy that could come from the dual expiration of Bush-era tax cuts and automatic spending cuts Jan. 1, if the lame duck Congress does not act. The outcome on taxes and spending is expected to be different, depending on who wins the White House and Senate in November.

“The number of times we’re going to see the candidates and hear about the candidates’ platforms does increase as you get closer and closer to the election so it does become more central to the market’s concerns,” said Adams. “I just think at this particular time, we have earnings right around the corner, and with the situations with Greece and Span.. There’s just so many macro issues to deal with. The election is one, not first and foremost.”

Hogan said the market is currently pricing in status quo with a Democratic White House and Senate, but that could change when President Barack Obama and Republican Mitt Romney are face-to-face Wednesday.

“If the opinion on the results of the election changes because of the debate, it could be a market moving event,” said Hogan. “If there’s an upside surprise in Mitt Romney’s performance here, and you see the spreads in the pivotal states tick up a bit, I think the market looks at that as a positive.”

The Republican ticket is widely favored on Wall Street, since Romney’s stand on taxes and spending are viewed as more favorable for the economy and markets. A Republican sweep, while not apparent in the polls, would also be expected to bring a swifter resolution to the fiscal cliff.

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

September bad for stocks? Why it’s different this time

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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September is usually the worst month for stocks. But this year, it’s actually been good for the market.

With just one trading day left in the month (and the third quarter), the Dow Jones Industrial Average is up about 2.5 percent so far.

The Dow, in fact, is on track to have risen in 11 of the past 12 months (it fell 6 percent in May). The last time that happened was in 1959.

Most of the Dow’s gains this month came in the the first two weeks as Wall Street anticipated the Federal Reserve’s new bond-buying program, which was announced on Sept. 13.

September, in fact, has been kinder to stocks in recent years, with the Dow rising in five of the past seven Septembers.

This month`s gain would cap a remarkable one-year run for the blue chip average. In fact, over the last 12 months, the Dow is up 2,500 points, or 23 percent.

The best-performing Dow stocks (on a percentage basis) during this time include Home Depot 80 percent, Walt Disney 72 percent, General Electric 45 percent, Bank of America 44 percent and Wal-Mart 43 percent.

One-third of the Dow’s 30 stocks make up almost two-thirds of the total gain over the last 12 months.

Here’s a look at the impact all of the Dow 30 stocks have had over the past year (since the close on 9/30/11).

bythenumbers.cnbc.com

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

‘Broken’ Libor system should be overhauled: UK Regulator

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The man in charge of a UK government report into what went wrong with the manipulation of the London interbank offered rate (Libor), the benchmark interest rate, will Friday call for a “complete overhaul” of the “broken” system.

Martin Wheatley, managing director at UK regulator the Financial Services Authority (FSA), will urge “greater rigor and transparency” in the system used to set Libor when he speaks on Friday morning.

In a copy of the speech seen by CNBC, Wheatley says that the scandal, which erupted this summer, has “torn the very fabric that our financial system is built on.”

He will call for the FSA to regulate the rate, and for only FSA-approved traders to help set it.

Wheatley will lead the new Financial Conduct Authority, which will take on some of the FSA’s duties when it is disbanded next year. His sharp criticism of the financial services industry echoes that of many UK politicians after allegations of Libor manipulation emerged.

The rate affects huge swathes of the financial system – including mortgage rates for households.

As expected, the British Bankers’ Association (BBA) will no longer be responsible for setting the rate. Wheatley criticized them for their “careless approach” towards Libor and launched an open tender for other organizations to run the process of setting the rate.

He said that the organization that replaces the BBA must be more independent than the trade body was.

Manipulation of the rate will become a criminal offence, which the FSA can prosecute. Wheatley said that the number of banks which submit data to the panel should increase – but at the same time, the number of reference rates should be reduced from 150 to around 20.

More obscure currencies which lack a sufficient amount of trade data, like the Australian, Canadian and New Zealand dollars and the Swedish and Danish krone, should be phased out.

Many in the market have been calling for such changes after revelations about how easy it was to manipulate the benchmark rate.

Arjuna Mahendran, Head of Investment at HSBC Private Bank, said the measures proposed were positive.

“The whole point of having an FSA accredited panel to set rates is a step forward and brings a level of professionalism to the whole process,” he told CNBC Asia’s “Squawk Box” on Friday. “It makes the process more transparent.”

Since its inception almost three decades ago, Libor has been set at around 11 a.m. London time. Banks involved in the libor panel send the rate at which they are willing to lend money to other banks to Thomson Reuters, via a secure network.

The highest and lowest quartile rates are removed and the average of the remaining rates becomes Libor.

In his speech on Friday, Wheatley will say: “This regulatory foundation must serve as the last line of defense, behind an overhauled governance structure, with a new, independent body, backed by a clear code of conduct, with clear rules and procedures regarding submission.”

Totally eliminating libor, which is used to set rates for an estimated USD 800 trillion of derivatives and debt, is believed to have been ruled out because of the sheer scale of the markets it affects.

The efforts to reform Libor are on a global scale, with Federal Reserve Chairman Ben Bernanke calling the rate “structurally flawed.” Libor was the model on which many other rates were established such as Sibor (the Singapore Interbank Offered Rate), Mibor (the Mumbai Interbank Offered Rate) and even Kibor (the Karachi Interbank Offered Rate).

As a result, other regulators may take their cues from the UK authorities.

Wheatley said: “It should be possible to develop a set of overarching principles that can be applied to all major benchmarks, to promote robustness and credibility across the markets.”

At Barclays, the scandal has claimed the scalps of Chairman Marcus Agius and Chief Executive Bob Diamond. The bank is now set for its biggest shake-up since the credit crisis under new head Antony Jenkins.

Royal Bank of Scotland (RBS) has also admitted it is facing fines related to the scandal – and a series of emails revealed in court documents in Singapore this week suggested that its traders openly mocked Libor and how easily it could be manipulated.

The succession process to replace Mervyn King as the Governor of the Bank of England may also be affected by the fallout from the row.

Paul Tucker, King’s deputy, was once seen as a natural successor. But Tucker was caught up in the scandal over questions on whether he had signaled to Barclays that they should keep the rate low during the financial crisis. Tucker has strenuously denied any improper actions.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Greece is better investment than China right now

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Greece may be in flames, but its stock market is doing quite nicely.

In fact, the gains so far this year have outpaced those in many financially stronger countries-especially China.

While Greece’s battle to combat its deficit, secure aid and implement austerity measures has roiled global markets since the start of the European debt crisis, its benchmark stock market index is set to end 2012 sharply in the black.

As of Wednesday, the Athens Composite Index had rallied 11.65 percent since the start of 2012, comparing favorably with “core” European countries’ indexes, such as France`s CAC 40 which is up 11.20 percent.

Athens`s strong performance puts it a shade behind the S&P 500, but ahead of the Dow Jones Industrial Average.

However, Athens`s rally becomes more striking when contrast with China`s benchmark index, the Shanghai Composite, which has dropped 7.61 percent since the start of this year. Is this a rare example of stock indexes misrepresenting economic fundamentals?

Analysts say not. “There are quite a few examples where there`s a big divergence between a country’s GDP growth and its equity performance,” Adrian Foster, the head of financial market research at Rabobank, said.

“Just look at China in 2007-08: when growth was at 10-plus percent, the Shanghai Composite fell from over 6,000 points to around 2,000.”

A current example of a country`s stock index underperforming its economy is Indonesia, said Foster. Despite the Asia-Pacific slowdown, Indonesia is thriving and grew at an impressive 6.4 percent in the second quarter. Meanwhile, its benchmark index, the Jakarta Composite, has rallied a respectable but unexceptional 10 percent year-to-date.

In addition, the Athens Composite`s strong performance reflects the record low it reached in June 2011, falling below 500 points, before Greece`s second bailout was agreed. Subsequently, the index has remained largely in the black.

On Wednesday, the Athens Composite closed 0.38 percent higher, despite the resurrection of violent anti-austerity protests in the Greek capital. All other major European indexesclosed lower.

The Shanghai Composite ended 1.2 percent lower on Wednesday at 2004.2 points.

– By CNBC.com’s Katy Barnato

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

We’re buying what the Fed and ECB are buying: Gross

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Pimco has been selling some of its Treasury holdings and is putting money into what the world`s central banks plan to buy, founder Bill Gross told CNBC`s Street Signs on Wednesday.

Back in August, Gross called the 1.5 percent yield on the 10-year Treasury a bottom. But he said “it`s hard to know when the Fed and other central banks keeping throwing hundreds of billions into the pot.”

Having pared some Treasury holdings, Gross has now begun to get out in front of the Federal Reserve and European Central Bank.

“We continue to anticipate what the Fed is buying,” Gross said. “They`ve told us they will buy USD 40 billion to USD 70 billion of agency mortgages every month until the cows come home. It pays to own these mortgages even though they`re overvalued.”

Pimco is also looking to get ahead of any ECB move to buy Spanish and Italian debt. “They told us they are going to buy Spanish and Italian 1- to 3-year debt should those countries apply for a rescue,” Gross said. (Read More: ECB Is Just `Bridge` Towards Stable Future: Draghi.)

While the riots on the streets of Spain and Greece are troubling, Gross expects that in the next two to four weeks Spain will be a recipient of ECB buying its bonds “so you want to buy them before they do.”

Gross also said the U.S. needs to address its high structural deficit. “The U.S. has gotten itself into a real corner in terms of high debt levels and that may lower real economic growth going forward,” he warned.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Reasons not to lose faith in Spain yet

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Spain is in turmoil once again and the besieged euro zone state is closer to asking for a financial bailout, but, perhaps investors should cut Madrid some slack, some analysts say.

The Spanish government is taking tough measures to end the country`s debt crisis and the 2013 budget, expected to be outlined later on Thursday, could go some way to easing investor concerns, they add.

Protests against austerity measures hit Spain’s capital city for a second night on Wednesday, while fears that Spain cannot get its finances under control have triggered a renewed jump in government bond yields and a sharp sell-off in Spanish stocks – a move that has had ripple effects across global markets.

While Spain still has a long road ahead, even with a rescue package, there are some reasons to be positive, strategists say.

“I think the clashes in the streets are an indication that structural, labor market, regional reforms are for real. But that should also tell investors to not underestimate the amount of effort Spain is putting in with stringent measures to make sure they make it,” Adolfo Laurenti, Deputy Chief Economist at Mesirow Financial in Chicago told CNBC Asia`s “Squawk Box.”

“Having spent some time in Spain, and knowing the situation in Italy as well, I know there is a very strong commitment in those countries to make it work. And I think that`s what many observers from far away are underestimating,” he added.

Spain on Thursday is expected to unveil further cutbacks and measures such as limits on early retirement and new taxes on greenhouse emissions to reassure investors that it is trying to get its fiscal house in order. The government has also said it will create an independent fiscal authority.

“This budget that they going to introduce will be the fourth round of belt tightening in less than a year,” Kathy Lien, Managing Director at BK Asset Management in New York said on Squawk Box.

Ben May, an economist at Capital Economics, said the Thursday`s 2013 budget could provide some positive signs for jittery markets.

“If it includes measures which the IMF and European Union have previously recommended, such as further structural reforms to labor and product markets, the government might avoid having to implement new policy measures to receive a bail-out in the future, paving the way for a deal to be put in place quickly,” May wrote in a research note.

Hard Times

Spain is widely anticipated to ask for a financial bailout from the euro zone – something the European Central Bank has stressed Madrid must do before it steps in to help the trouble country by buying its government bonds. Yields on Spanish bonds jumped above 6 percent on Wednesday, heading back to levels viewed as unsustainable.

Prime Minister Mariano Rajoy faces pressure from Europe`s policy makers to take harder measures such as freezing pensions. Data released earlier this week showed Spain will miss its public deficit target of 6.3 percent of GDP this year, while the country`s central bank said on Wednesday the economy contracted sharply in the third quarter.

On Friday, the results of an independent audit of Spain`s banking sector will show how much money will be needed from a 100 billion euro ($130 billion) aid package for the banks already approved by Europe.

According to May, the announcement also has the potential to give markets a positive boost.

“This might reveal that the banks need capital injections of perhaps 40 billion to 60 billion euros to restore them to full health, much less than the 100 billion that has been set aside… Not only would this be good news for the Spanish public finances, it would also leave the bail-out facilities with more firepower to tackle the region`s other problems,” he said in the note.

Analysts agreed that to really restore faith, Spain would need to ask for a financial bailout, something it is seen as reluctant to do because of the political backdrop at home and conditions that may be attached. (Read More: Spain Nears Bailout – But What`s Different This Time?)

“Now it`s up to Spain to deliver on reform and that would be more credible if they took the European bailout money,” said Laurenti.

That view was shared by Lien, who said: “Investors want Spain to request a bailout and unless it doesn`t, they will continue to attack those bond yields and the euro to try and force the Spanish government into that direction.”

“So when the announcement comes, and I think it is pretty inevitable, that will be positive for the euro and lift Spanish bonds as well. But up until then, there will be more pain for the euro,” she added.

-By CNBC`s Dhara Ranasinghe; Follow Her on Twitter @DharaCNBC

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Beware the coming 25 percent correction: Pro

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Renewed jitters over Europe, growing fears about China and the US’s precarious fiscal situation all bode poorly for the recent stock rally, which could correct as much as 25 percent in the coming months, an investment manager said Wednesday.

Market participants often refer to unanticipated occurences that rock the global economy as “black swans“. Yet Stanley Crouch, chief investment officer at Aegis Capital, told CNBC’s “Street Signs” that a “freckled swan” of powerful macroeconomic headwinds is building momentum.

“That’s the swan with the patches of all the problems that we already know are out there but they’re all in a combination,” he said.

With the euro zone’s debt crisis reaching a crescendo and the US election outcome still uncertain, “we’ve got plenty of issues to worry about,” said the investor, who helps Aegis manage about USD 2 billion in assets.

Since June, equity markets have surged, defying the predictions of many skeptics who argued that looming difficulties in the world’s economy would soon put a damper on the rally.

Crouch argued that stocks have rallied largely based on bond-buying expectations from the Federal Reserve, rather than healthy factors underpinning the global economy. The Fed’s unfurling of more quantitative easing was mostly a non-event that had already been factored into stock prices.

“We paid in advance for this classic ‘buy the rumor, sell the news’ event,” Crouch said. While reluctant to say how deep major stock benchmarks could fall, he warned that the Dow Jones Industrial Average could “possibly” break 10,000 with the SandP 500 Index revisiting its lows from last fall.

“I think we see more downside pressure here ,” he said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Market expects more drama heading into fourth quarter

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The third quarter could fade quietly away in the week ahead, as markets look forward to a more dramatic fourth quarter, with the election and pending “fiscal cliff” making it the trickiest period of the year.

The approaching quarter-end Friday could bring some portfolio adjustment as investors look to lock in some gains in a year where the stock market’s 16-percent rise has surprised just about everyone. In the coming week, there are data on housing, the economy’s one brightening spot, and the consumer. There should also be more companies issuing pre-announcements on earnings, as the global slowdown holds back revenue growth and bites into profits.

“The market really heats up , in terms of market-moving events in the first week in October, when we have the unemployment report, the presidential debate, and the euro-zone finance ministers meeting. You get the beginning of the earnings season, and there’s a little more trepidation than usual as to what the earnings season could look like,” said Leo Grohowski, CIO of BNY Mellon Wealth Management. Earnings for the SandP 500 are expected to be down nearly 2 percent after a less than one percent gain in the last quarter.

Janney Montgomery chief investment strategist Mark Luschini said there could be some late-quarter buying by fund managers who are trailing the index gains. “I think it’s always a little choppy around that window-dressing period, but for this one with so many lagging, I think that could bias the market higher,” he said.

Stocks finished the past week flattish but the SandP 500 at 1450 is up 3.8 percent for the month and 7.2 percent for the quarter. The Dow ended the week at 13,579, down 13 points for the week. It is up 3.7 percent for the month and 5.4 percent for the year.

“I don’t think investors should extrapolate out this wonderful summer and just assume we’re going to have a wonderful fall,” said Grohowski.

Focus will remain on the Mideast and specifically Iran’s nuclear program in the coming week, as the UN General Assembly meets, starting Tuesday. Europe will also stay in the headlines, as investors watch to see whether Spain will finally make a request for aid.

“Obviously, if Spain comes forward and actually asks for a buyout formally and succumbs to whatever conditionality there is, I think that could be an additional catalyst for equity prices,” said Luschini.

But the market needs a bigger catalyst to keep it going. “I think for equity prices to get much better, I really think we need to get some validation coming from the economic fundamentals,” he said.

Grohowski, and other strategists, see the market as overdue for a pullback after its summer run. “I just don’t think it’s going to be this easy, smooth sailing between now and the election. I’m just a little more cautious,” he said. Grohowski expects to see a three- to five-percent pullback in the near future.

Cliff-Hanger

The “fiscal cliff” is the one-two punch to the economy that could occur if Congress doesn’t act on expiring Bush tax cuts, and the more than USD 100 billion in automatic spending cuts that will start Jan. 1, as part of the debt ceiling deal. Goldman Sachs economists said Friday that if the economy hits the cliff, and there are no adjustments to the expiration of Bush-era tax cuts, disposable income would be reduced by more than 4 percent in early 2013, with the biggest impact on the lowest and highest income groups.

If the tax cuts expire, income-tax brackets would go from the lowest at 10 percent and the highest of 35 percent, to a low 15 percent and high 39.6 percent.

Year-end tax selling could take on new meaning, if it looks like Congress will let the Bush tax cuts expire. “I think people understand their dividends are going to be taxed differently, but many of them don’t understand the magnitude of that jump,” Grohowski said. The wealthiest Americans could pay 43.4 percent on dividends, instead of the current 15 percent, because a new tax that came with health care legislation taxes certain types of income at a rate 3.8 percent above the income tax rate.

“I think there’s a 50-percent chance we hit the cliff,” he said. Grohowski said that makes already pricey dividend stocks like utilities, REITs and MLPs less attractive.

Luschini said the market should start to focus more on these concerns. “October is all about the election,” he said. “I think as we draw close to the election, it’s going to take a more critical role in determining the direction of the market. I think the market has started to appreciate a little more the possibility of a fiscal cliff, but not the probability.” Luschini said the presidential debates could highlight the cliff in the minds of investors, particularly if the candidates come off as obstinate and unwilling to compromise.

Monday

Earnings: Lennar, Paychex, Red Hat

10:30 a.m. Dallas Fed manufacturing survey

12:00 p.m. IMF Director Christine Lagarde speaks at Peterson Institute

3:10 p.m. San Francisco Fed President John Williams on the economy

Tuesday

Earnings: Carnival , FactSet, Vail Resorts, Copart, Jabil Circuits

9:00 a.m. SandP/Case-Shiller home prices

10:00 a.m. FHFA home prices

10:00 a.m. Consumer confidence

10:00 a.m. Richmond Fed survey

12:00 p.m. Philadelphia Fed President Charles Plosser on economic outlook

1:00 p.m. USD 35 billion 2-year note auction

Wednesday

Earnings: Progress Software, Texas Industries, Worthington Industries

10:00 a.m. New home sales

1:00 p.m. USD 35 billion 5-year note auction

Thursday

Earnings: Discover Financial, McCormick, Actuant, Nike, Accenture, Micron, Research In Motion, Global Payments

8:30 a.m. Initial claims

8:30 a.m. Durable goods

8:30 a.m. Real GDP Q2 (final)

10:00 a.m. Pending home sales

11:00 a.m. Kansas City Fed survey

1:00 p.m. USD 29 billion 7-year note auction

4:30 p.m. Fed balance sheet and money supply

Friday

Earnings: Walgreens, American Greetings, Finish Line

8:30 a.m. Personal income and spending

8:30 a.m. Consumer spending

8:30 a.m. Core PCE prices

9:45 a.m. Chicago PMI

9:55 a.m. Consumer sentiment

Follow Patti Domm on Twitter: @pattidommQuestions? Comments? Email us at marketinsider@cnbc.com

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Goldman sees fear of ‘cliff’ hitting stocks next quarter

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Goldman Sachs strategists expect the “fiscal cliff” to push the market lower in the fourth quarter, and they recommend investors sell the stocks that have lagged so far this year.

Goldman chief US equity strategist David Kostin writes that the SandP 500 should fall sharply after the election when investors finally realize that there is a possibility that the so-called “fiscal cliff” will not be resolved smoothly. He says the majority of investors expect to see the fiscal cliff avoided in the lame duck session of Congress, but Goldman sees a one-in-three chance that Congress will fail to address the issue.

The so-called “cliff” is the slam the economy would take from the expiration of Bush-era tax cuts and the automatic spending cuts that will hit the budget Jan. 1 if Congress does not act. The USD 100 billion spending cuts were agreed to as part of the debt ceiling compromise and are onerous, with a disproportionate hit going to the defense budget.

In the 23 years that the SandP was positive in the first nine months, a sector-neutral basket of underperforming stocks continued underperforming by an average 291 basis points during the fourth quarter, giving the strategy a 65 percent outperformance rate.

In most years, the SandP 500 rose in the fourth quarter, and the strategy returned 177 basis points versus the market. But in the six years that were negative in the fourth quarter, as Goldman suggests this year will be, the strategy worked four of six times, delivering an average of 270 basis points.

Goldman says the five biggest laggards are Alpha Natural, Apollo Group, DeVry, Advanced Micro Devices, and Electronic Arts.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Investors pocket profits as quarter winds down

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

As the quarter comes to a close, investors are pocketing profits with a wary eye on Europe’s sovereign crisis and sluggish global growth.

The SandP 500 Tuesday dropped 1 percent to 1,441 in its worst day of the quarter, and its biggest decline since late June. For the quarter, the SandP has a gain of 5.8 percent, and it is up 14.6 percent for the year-to-date. The Dow Tuesday slid 101 points, to 13,457, as Caterpillar lost more than 4 percent. Caterpillar’s earnings warning after the bell Monday was a reminder that China’s slowing growth has created a drag on the world economy.

Apple was a big loser Tuesday, falling 2.5 percent in a second day of losses, and Google saw a dramatic late turnaround, giving up the day’s gains to close slightly lower. “When two momentum names lose momentum, it’s a little bit of a blow to the heart of the market,” said Scott Redler, who watches the market’s short term technicals at T3Live.com.

“The upper floor that traders have been maneuvering – 1,449 to 1,452 (on the SandP) – got breached today, meaning some momentum has been lost in the market,” he said. “Today’s move below 1,449 opens the door to some lower prices.” Redler said the market could be moving toward 1,421, the breakout level when European Central Bank President Mario Draghi this summer promised the ECB would do whatever it takes to defend the euro.

Redler said the market should test the 1,435 level, the 21-day moving average. “It tested it seven times since the June 4 low. It can test the 21-day and still be considered healthy.”

“The 50-day goes all the way down to 1,406. There’s a high probability we test the 21-day, and there’s a possibility we test the 50,” he said.

Traders said markets were also spooked Tuesday by protests in Spain, which turned into violent clashes as police used sticks to turn back crowds. The Spanish government is expected to unveil a new budget with austerity measures this week. On Wednesday, Greece’s largest public and private sector unions hold a 24-hour nationwide anti-austerity strike and rally.

Meanwhile, the UN General Assembly continues Wednesday with a speech by Iranian President Mahmoud Ahmadinejad, who is expected to defend his country’s nuclear program.

What Else to Watch

New home sales at 10 a.m. ET is the only US data expected Wednesday, and the Treasury auctions USD 35 billion in five-year notes at 1 p.m. There are a few earnings, including HB Fuller, Progress Software and Texas Industries after the bell.

Housing price data was a positive Tuesday, as was a big jump in consumer confidence to its highest level in seven months.

“Stocks haven’t acted that well since the immediate aftermath of ‘QE forever,'” said Barry Knapp, of Barclays Capital. Knapp, who heads equity portfolio strategy, was referring to the latest Fed policy initiative, which is an open ended program to buy mortgage securities. “You had a pretty quick reversion to stocks with bond-like characteristics, the defensive type. They’ve been the best performers.”

“Aggressive monetary policy is helpful, but you need something more. You need either the growth outlook to improve or the policy outlook to improve,” said Knapp, adding it could take months for QE to start working.

Knapp said a catalyst could come next week from PMI manufacturing data for Europe if it shows any improvement, or if Republican presidential candidate Mitt Romney looks strong in next week’s first presidential debate. Romney is the preferred candidate of many on Wall Street but he is trailing and President Obama has been gaining a bigger lead in some polls.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow