“If all the economists were laid end to end, they’d never reach a conclusion.” -- George Bernard Shaw
The fact that Washington continues to act out its political theater in somewhat of a vacuum, as if its actions had little impact on the rest of the country, doesn’t seem to be fazing the U.S. equity market a whole lot at the moment.
Perhaps a high percentage of investors have come to accept that the possibility of a lemming-like leap off of a fiscal cliff is somewhat already baked into the market.
Or maybe the most recent jobs numbers out of D.C., revealing that unemployment has dipped to 7.7%, was enough to convince investors that the economy may actually have a more solid footing than many had thought.
On the other hand, last week’s Thompson Reuter/University of Michigan’s consumer sentiment index fell hard enough that it landed at its lowest level in about four months.
The current economic picture remains one of contradiction, and if you are looking for a clear trend, that might remain elusive, at least until after the New Year. That’s when cliff-divers will either already be in mid-air or on their way back down the hill.
So should investors hop on the recent three-week bandwagon and ride the sleigh to a Christmas rally? Or should the last few weeks of the year be a good time to take a break from the market and count profits or lick wounds?
That depends, naturally, but here are a pair of key factors that are worth contemplating before making that “to be, or not to be in the market” decision.
Ben Bernanke’s Fed press conference scheduled for this Wednesday could make that decision a little easier, as expectations are high that some form of stimulus, be it rate cuts or bond purchases, will be offered up to the country. This would normally be a very big market mover, but the fiscal cliff concern will probably mute the Fed impact.
A second key factor is this week’s European Union meeting, where the question of how to institute a single supervisor for the region’s banks will be discussed. The issue is thorny, and presently has France and Germany representing different sides of the equation, with France wanting more shared-debt by the region’s members. Germany, on the other hand, wants the European Central Bank (ECB) to keep its eye on the ball of its mandate, which is primarily one of keeping inflation in check. With Germany’s relatively recent history of sharp social unrest resulting from extreme inflation, it might be an understandable position, but one that must be reconciled with France’s interests before the single supervisor issue, and ultimately the banking union issue, can be resolved.
The stars could align for a solid year-end rally, one that could be amplified by the dwindling volume that is as traditional as eggnog for this time of year.
Congress could show at least a smattering of sincerity in solving the fiscal cliff problem. The Fed could come out with a level of stimulus that cheers Wall Street. And the eurozone leaders could make the necessary jump out of national postures into one of a fiscal union.
After all, there still remain a few weeks until 2012 ends. And there is always Santa. Keep your ears open for the sound of sleigh bells. But have a few hedges in your portfolio, just in case the ride gets a little bumpy.
What the Periscope Sees
As was the case last week, technology sits atop the Sabrient SectorCast ETF Rankings, which ranks each of the ten U.S. industrial sector iShares (ETFs) by Sabrient’s proprietary Outlook Score.
Once again, we are going with the proven performers for the year, as they already have indicated a strong ability to weather the dips and curves of this year’s market action.
Here is a list of some of the top performing technology ETFs, along with updated year-to-date returns as of the first week in December.
FDN -First Trust Dow Jones Internet Index +17.43%
XLK-Technology Select Sector SPDR Fund +13.05%
IXN- iShares S&P Global Technology Sector Index Fund +13.49%
IGV-iShares S&P GSTI Software Index Fund +13.08%
VGT-Vanguard Information Technology Index Fund +12.30%
If you are considering playing options in lieu of the ETFs themselves, consider utilizing March expiration calls that are several strikes out-of-the-money.
ETF Periscope
Full disclosure: The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”
Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.
