Over the past several weeks, the overall stock market has resembled a roller coaster -- down and up; down and up; and then a quick drop. That's the case no matter which major market index we look at. The only real difference among the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite has been the degree of the drop. While the first two indices have fallen roughly 7% over the past month, the Nasdaq has dropped a more pronounced 8.1% in the past four weeks, and nearly 10.4% since Sept. 14. Weighing on the Nasdaq like a rock has been Apple (AAPL), which has fallen 18% in the last month alone.
With the presidential election behind us, the primary driver behind the drop in the stock market has been the uncertainty associated with the looming "fiscal cliff." While the politicians in Washington will look to hammer out a deal to avert the cliff, uncertainty remains over when that deal may be reached, as well as over what it entails -- and this will have companies and consumers hoping for the best, but planning for the worst. To me it means that, as we inch closer to the year's end without a deal, companies will likely take several preemptive actions: They'll revisit forecasts, slow if not halve capital spending projects, freeze hiring and at least prepare for reductions in head count.
A number of companies, including Boeing (BA), Texas Instruments (TXN) and Xerox (XRX), have announced layoffs. As a result of this and similar announcements ahead of Election Day, we saw a dramatic increase in weekly initial jobless claims this week -- up 78,000 from the prior week to 439,000. While some will attribute a portion of the increase to Hurricane Sandy, we cannot dismiss the impact of the fiscal cliff. With the announced closure of Hostess Brands last week, we can look forward to another 18,000 people joining the unemployed.
Aside from layoffs, we are starting to see fiscal-cliff uncertainty the creep into other economic data. The Federal Reserve Bank of Philadelphia's reported a contraction in manufacturing activity, with the index from its business-outlook survey falling from 5.7 in October to negative 10.7 in November. Not only that, but the Philly Fed manufacturing new-orders index fell from minus 0.6 in October to minus 4.6 in November. Also last week, Empire State Manufacturing Survey reflected its fourth consecutive negative month in the business-conditions index for November.
Needless to say, investors are waiting for the deal-making on the "fiscal cliff" to move forward. While it's not impossible that a deal will be hammered out this week, the probability is low because of Thanksgiving. For investors, the holiday means trading volumes should taper off big time Wednesday, and remain subdued Friday -- better known as Black Friday, the official kick-off of the holiday shopping season. For me that means more mall walks as I gauge what consumers are really shopping for and where this holiday season looks headed.
Between Monday and at least Wednesday, however, it's business as usual. On the economic front, housing data will once again be front and center. While we all reflect and give thanks Thursday, Markit Economics will be publishing the latest purchasing manufacturing indices for China and the eurozone. Shifting to corporate earnings, this will be a slow week for reports overall, also due to the holiday. Nonetheless, we are due to hear from a number of noteworthy companies, including Lowe's (LOW), Best Buy (BBY), Hewlett-Packard (HPQ), Deere (DE) and a number of food- and shoe- related names.
Enjoy the trading week -- and, from both me and my family, have a great Thanksgiving with your loved ones.
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
- Existing Home Sales (October) - Monday, Nov. 19
- National Association of Home Builders (NAHB) Housing Market Index (November) - Monday, Nov. 19
- Housing Starts (October) - Tuesday, Nov. 20
- Building Permits (October) - Tuesday, Nov. 20
- Markit Flash US Manufacturing Purchasing Managers Index - Wednesday, Nov. 21
- Mortgage Bankers Association (MBA) Mortgage Index (Weekly) - Wednesday, Nov. 21
- Initial & Continuing Jobless Claims (Weekly) - Wednesday, Nov. 21
- Michigan Sentiment Index - Final (November) - Wednesday, Nov. 21
- Leading Indicators (October) - Wednesday, Nov. 21
- HSBC Flash China Manufacturing PMI - Thursday, Nov. 22
- Markit Flash Eurozone PMI - Thursday, Nov. 22
- Industrial Production (October) - Friday, Nov. 23
Corporate Earnings This Week
- Agilent Technologies (A) - Monday, Nov. 19
- Krispy Kreme Doughnuts (KKD) - Monday, Nov. 19
- Lowe's - Monday, Nov. 19
- Nuance (NUAN) - Monday, Nov. 19
- Shoe Carnival (SCVL) - Monday, Nov. 19
- Tyson Foods (TSN) - Monday, Nov. 19
- Urban Outfitters (URBN) - Monday, Nov. 19
- Best Buy (BBY) - Tuesday, Nov. 20
- Bob Evans Farms (BOBE) - Tuesday, Nov. 20
- Brown Shoe (BWS) - Tuesday, Nov. 20
- Chico's (CHS) - Tuesday, Nov. 20
- Campbell Soup (CPB) - Tuesday, Nov. 20
- dELiA*s (DLIA) - Tuesday, Nov. 20
- DSW (DSW) - Tuesday, Nov. 20
- Dycom Industries (DY) - Tuesday, Nov. 20
- H.J. Heinz (HNZ) - Tuesday, Nov. 20
- Hewlett-Packard (HPQ) - Tuesday, Nov. 20
- Hormel Foods (HRL) - Tuesday, Nov. 20
- Jack in the Box (JACK) - Tuesday, Nov. 20
- SemiLEDS (LEDS) - Tuesday, Nov. 20
- Valspar (VAL) - Tuesday, Nov. 20
- Zale (ZLC) - Tuesday, Nov. 20
Upcoming Company and Investor Conferences
- 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