In the past couple of days, I've refused to leave the fiscal-cliff command post for food or water, as every precious second could offer life-altering details. Nevertheless, on this second day of 2013, I'm feeling self-imposed pressure to uncork random stock picks -- because, hey, opportunistic investors should buy when others are most fearful, right?
Adding to the mental anguish here is that the underinvested smart money is probably jockeying to reposition into its favorite names -- such as Apple (AAPL) into its earnings announcement -- after they'd been dumped in late December. All the while, these market players appear to be nibbling on alleged turnarounds that just have to fundamentally perform better than 2012 due to modest "cliff clarity."
Oh, and to add another lay of intrigue, the market is preparing to digest three reads on employment: the Institute for Supply Management numbers, the ADP and the Labor Department's nonfarm payrolls. These could reflect real-economy damage borne of weeks of post-election political grandstanding. I certainly haven't forgotten the market's post-election material selloff, either; if you believe in the market's natural predictive superpowers, you must relent that this, too, was forward-looking.
Alas, this fella enters the race wearing his stock-stalker outfit, and continuing to have reservations as we begin the new year, given the vigor conveyed by investment-bank predictions. In other words, I am engaging in good, old-fashioned research that yields two outcomes: a manageable core set of positions and trades for the upcoming earnings season.
For starters on why I'm doing this, an imbalance remains between bullishness and bearishness. I sense too much of the former -- though my unscientific read on this bearishness is that it's higher than it was in mid-December, when I moved completely to the sidelines on risk. I'm seeing a few important near-term events that could dent stocks, and they include the following:
● Sales and earnings-warning season could trigger further markdowns in estimates for the fourth quarter and for 2013, which to my knowledge are not priced in to present valuations across many sectors.
● The economic-data cliff will commence. December nonfarm payrolls will be stacked alongside weak employment components in regional manufacturing and consumer surveys -- in addition to the continuation of political drama, as well as the slashing of September and October payrolls figures. All this does not strike me as constituting firm grounds for a fresh read that will embraced by the market.
What to Debate on the Trading Floor Today
First: the early consensus says that, in the second half of 2013, gross domestic product growth will re-accelerate from a first-half baseline. Analysts are increasingly viewing first-half GDP as achieving slightly negative status -- a small shift in expectation from the prior prediction, which said the economy would narrowly avert negative growth in the aftermath of the fiscal cliff.
Second, because Congress joined forces in a mangled fashion at the last possible minute, an opinion is now budding that this implies a "we'll get it done" attitude on the debt ceiling. It's dangerous thinking, but I admit this issue should be placed on the back burner, since we have learned the market only cares when the moment of reckoning is set to arrive. Of course, this will obviously change when the ratings agencies drop the hammer on the U.S. credit rating sometime in the next two months.
Also, here's a bit of common sense: Those earning below $50,000 a year will have $84 less in their pockets, and that is no joke. Keep that in mind if and when anyone tries to pitch you the consumer discretionary sector as a place to park your money early in 2013.
Finally, when it comes to adding risk back to your portfolio, I think tech land should be your first destination. The removal of intense cliff uncertainty should free up order visibility. That metric had waned in the second half of 2012 -- and, in fact, I am on the prowl for this element starting to appear in January manufacturing reports.