The Week Ahead: 'Fiscal Cliff' Worries Bubble to the Surface

 | Nov 11, 2012 | 8:00 PM EST  | Comments
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As we all are well aware by now, the 2012 presidential election is over, and President Obama will remain in office for the next four years as House and Senate retain the same respective majorities. With that overhang eliminated, the near-term focus of stock market has now shifted to the fiscal cliff, and whether a deal can be struck to avert the potential sequestration and tax hikes that are associated with it. 

In the mind's eye of the stock market, that means more than a fair amount of uncertainty remains. As most, if not all, investors recognize, nothing prompts stock-market anxiety and volatility more than uncertainty. It appears the stock market has contracted a quick case of winner's remorse, thanks to this recipe of items that need to be dealt with. The day after Election Day, all of the major stock market indices fell sharply lower, with the Dow Jones Industrial Average falling more than 350 points at session lows to cross well below the 13,000 line. The S&P 500 -- my preferred market index, given its wider breadth of companies -- fell 2.4%, and the Nasdaq Composite Index dropped 2.5%. 

Helping fuel that view of uncertainty was a new report on the fiscal cliff issued by the Congressional Budget Office. The report stated the fiscal cliff would drive the U.S. economy back into recession next year, and would result in a jump in the jobless rate to 9.1% by the end of 2013. If Congress fails to avert the tax increases and spending cuts put in motion by an earlier deficit agreement, said the CBO, economic output would drop by 0.5 percentage point in 2013. These assertions are nothing new: Earlier this year, the CBO forecasted earlier that the U.S. economy could fall into recession next year if nothing is done to avert the fiscal cliff. 

The big political question coming out of last week was whether the left and the right can come together to work out a solution in which both sides can claim victory. As we inch closer to the fiscal-cliff deadline and wait for a viable deal to be struck, companies will hope for the best but plan for the worst. Past a certain point, that will likely mean lowered guidance, reviewed capital spending, and frozen hiring -- and layoffs may be contemplated, if not implemented. 

Already companies are starting to announce layoffs, as are state and local governments. Boeing (BA) announced it would lay off 30% of the executives at its defense operations unit, and job cuts also were announced by Pratt & Whitney, Perkin Elmer (PKI), Bristol-Myers (BMY), Corning (GLW) and others. Soon after Election Day the Richmond Daily reported that Virginia Governor Bob McDonnell declared state agencies must be prepared to cut their budgets by 4%, effective immediately. State agencies in Virginia are to propose their cuts by Nov. 21, the day before Thanksgiving.

Looking ahead to the coming five trading days, politics and the fiscal cliff will remain a market driver early this week. On the economic data front, we'll get a handful of consumer, inflation and manufacturing data. The October reading for retail sales is set to be complimented this by the smattering of retail earnings reports -- from Dick's Sporting Goods (DKS), Home Depot (HD), Ross Stores (ROST) and TJX (TJX), among others. Also over the coming sessions, we'll hear several management teams from D.R. Horton (DHI) and Beazer Homes (BZH) offer their latest take on the domestic housing market

Here's a more granular look at what investors should be watching and listening to over the next five trading days.

 

Economic Events This Week

  • Mortgage Bankers Association (MBA) Mortgage Index (Weekly) -- Wednesday, Nov. 14
  • Retail Sales (October) -- Wednesday, Nov. 14
  • Producer Price Index (October) -- Wednesday, Nov. 14
  • Business Inventories (September) -- Wednesday, Nov. 14
  • Federal Open Market Committee Minutes (October 24, 2012) -- Wednesday, Nov. 14
  • Initial & Continuing Jobless Claims (Weekly) -- Thursday, Nov. 15
  • Consumer Price Index (October) -- Thursday, Nov. 15
  • Empire Manufacturing Index (November) -- Thursday, Nov. 15
  • Philadelphia Fed Index (November) -- Thursday, Nov. 15
  • Industrial Production (October) -- Friday, Nov. 16
  • Capacity Utilization (October) -- Friday, Nov. 16

 

Corporate Earnings This Week

  • Beazer Homes -- Monday, Nov. 12
  • CTI Industries (CTIB) -- Monday, Nov. 12
  • D.R. Horton -- Monday, Nov. 12
  • Hologic (HOLX) -- Monday, Nov. 12

  • Cisco (CSCO) -- Tuesday, Nov. 13
  • Dick's Sporting Goods -- Tuesday, Nov. 13
  • Elbit Systems (ESLT) -- Tuesday, Nov. 13
  • Home Depot -- Tuesday, Nov. 13
  • Harris Interactive (HPOL) -- Tuesday, Nov. 13
  • Jacobs Engineering (JEC) -- Tuesday, Nov. 13
  • Michael Kors (KORS) -- Tuesday, Nov. 13
  • Saks (SKS) -- Tuesday, Nov. 13
  • TJX  -- Tuesday, Nov. 13

  • Alvarion (ALVR) -- Wednesday, Nov. 14
  • Abercrombie & Fitch (ANF) -- Wednesday, Nov. 14
  • Hot Topic (HOTT) -- Wednesday, Nov. 14
  • Meritor (MTOR) -- Wednesday, Nov. 14
  • NetApp (NTAP) -- Wednesday, Nov. 14
  • PetSmart (PETM) -- Wednesday, Nov. 14
  • Spectrum Brands (SPB) -- Wednesday, Nov. 14
  • Staples (SPLS) -- Wednesday, Nov. 14
  • Tyco (TYC) -- Wednesday, Nov. 14
  • Williams-Sonoma (WSM) -- Wednesday, Nov. 14

  • Applied Materials (AMAT) -- Thursday, Nov. 15
  • Aruba Networks (ARUN) -- Thursday, Nov. 15
  • The Buckle (BKE) -- Thursday, Nov. 15
  • Bon-Ton (BONT) -- Thursday, Nov. 15
  • Cosi (COSI) -- Thursday, Nov. 15
  • Dell (DELL) -- Thursday, Nov. 15
  • Dollar Tree (DLTR) -- Thursday, Nov. 15
  • Dole Food (DOLE) -- Thursday, Nov. 15
  • GameStop (GME) -- Thursday, Nov. 15
  • Gap (GPS) -- Thursday, Nov. 15
  • Intuit (INTU) -- Thursday, Nov. 15
  • Limited Brands (LTD) -- Thursday, Nov. 15
  • Perry Ellis (PERY) -- Thursday, Nov. 15
  • Ross Stores -- Thursday, Nov. 15
  • Sally Beauty (SBH) -- Thursday, Nov. 15
  • Sears Holdings (SHLD) -- Thursday, Nov. 15
  • SINA (SINA) -- Thursday, Nov. 15
  • Target (TGT) -- Thursday, Nov. 15
  • Viacom (VIA) -- Thursday, Nov. 15
  • Wal-Mart (WMT) -- Thursday, Nov. 15

  • Ann Taylor Stores (ANN) -- Friday, Nov. 16
  • Casual Male Retail (CMRG) -- Friday, Nov. 16
  • Footlocker (FL) -- Friday, Nov. 16
  • Hibbett Sports (HIBB) -- Friday, Nov. 16
  • J.M. Smucker (SJM) -- Friday, Nov. 16

 

Upcoming Company and Investor Conferences

  • J. P. Morgan Asia Pacific TMT Conference, Nov. 12-13
  • Credit Suisse 2012 Healthcare Conference, Nov. 14
  • Roth Capital Partners Enterprise Software Corporate Access Day, Nov. 14
  • Jefferies 2012 Global Healthcare Conference, Nov. 14-15
  • UBS Global Technology Conference, Nov. 14-15
  • William Blair Second Annual Financial Services & Technology Summit, Nov. 15
  • William Blair Real Estate Services and Technology Summit, Nov. 16
  • UBS Global Real Estate Conference, Nov. 27-28
  • Credit Suisse 2012 Aerospace & Defense Conference, Nov. 28-29
  • Jefferies 2012 Global Energy Conference, Nov. 28-29
  • J.P. Morgan SMid Cap Conference, Nov. 28-29
  • UBS 40th Annual Global Media and Communications Conference, Dec. 3-5

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