Normally I wouldn't ever consider such a slacker thought as keeping it light, but do feel that it's appropriate for this very one time.
This has been a weird week, as the possible on fiscal cliff has gotten priced into stocks even as cheap-suit wearing pols are off hanging out with their families (pretty neat trick by the prez dropping calming lines into the holiday, huh?). It remains my belief that there continues to be considerable headline and real risks associated with the fiscal cliff's debate and eventual outcome. It will be chock full of twists, turns and loops. In the end, whatever is force fed down our throats, it stands to be a growth suppressant that prevents many companies from truly shining. Be careful adding back long exposure (caution not 100% clinginess to cash).
If you are able to stomach the whipsawing and can pay careful attention to the markets, putting some long exposure is OK. But to do that solely on fiscal cliff headline watching would be ridiculous, misguided and counter to any principle of investing I hold dear. There seems to be a healthier tone to trading on economically sensitive stocks (financials), macro data (housing) and micro data (Caterpillar's (CAT) monthly sales report, which indicated no sharp deterioration in trends expressed on the dreadful earnings call in October).
Follow the plan and you can be the swashbuckling pirate at the Thanksgiving dinner table.
"Isn't fiscal cliff supposed to destroy the world?" asks that annoying guest. "What is risk on, dad? You noted that in your text message yesterday," shouts a son or daughter while spilling gravy on the tablecloth. Be armed with these talking points.
This is by no means a buy-across-the-board call. To go from bearish to incrementally more positive could happen quickly if the proper signs materialize. They are materializing if you look hard.
- Financials have sprung to life.
- On perceived bad news such as Bernanke's comments at the old boys' network, stocks reversed losses or held firm.
- Stocks that have managed to cross the 50-day moving average and continue to build on that move.
- Stocks that should be acting favorably on favorable sector-specific news are doing so (homebuilders to starts data, for example).
- There is this chase-the-tape mentality on the Street and with positive signs under the surface it could continue to be unlocked.
- Consumer staples turned off on Tuesday (despite mixed news flow), ditto Treasuries.
- According to JPMorgan, since 1950, and excluding recession years, the gains on stocks from mid-November to year end have averaged 2.3%. This is a fun stat that is quite useful in light of Bernanke solidifying the view that if fiscal cliff is resolved to any degree in short order, there are positives in the economy to be sustained (and by extension, the reacceleration in corporate earnings growth into the second part of fourth quarters).
- With a little over a month to go, I am getting a funny feeling those companies could pull forward their dividend announcements. There could be solid increases offered to compensate investors for the likely higher rate of tax. Note that cash-to-asset ratios for S&P non-financials sits at 10.8%, close to the record high touched in late 2011. If companies are keen on not planting a ton of new fixed assets into the ground to establish a base to grow future earnings strongly, they will have to go the route of pleasing shareholders today through more aggressive balance sheet utilization.
I want to wish you and your family a Happy Thanksgiving. Enjoy the games, but DO NOT turn off your investing brains (for instance, Under Armour (UA) is sure making strides in pro athletic footwear).