Ninety percent of the politicians give the other ten percent a bad reputation. --Henry Kissinger
News of late-day meeting between President Obama and Speaker Boehner gave the market a late bump, but there are no new details this morning and we are looking at another flat open.
It probably is good news that there aren't any details about the meeting, as it indicates that there is progress in the discussions. If nothing new had happened, we'd be hearing complaints about how it looked hopeless because the other side isn't serious.
Unfortunately, this fiscal-cliff drama isn't over yet, and the best we can hope for is that a deal is done at the end of next week so that the politicians can head home for the holidays. The market can hold up well until then as it anticipates a favorable outcome, but if there isn't the outline of a deal by next Friday, it is going to cause nervousness and a very rocky market. Many market players are likely to just close up shop and call it a year rather than battle with the market during the thin trading between Christmas and New Year's Day.
The dilemma, of course, is that the market could spike upward at any time if there is any progress at all. It is extremely dangerous to be aggressively short when one headline can change things so quickly. We saw this dynamic often during the European sovereign debt debates. How many times were the bears stung when there was news that Greece was saved?
Although the market has held up remarkably well during the course of this tiresome debate, it has not been an easy trading environment. There are limited pockets of action, little momentum and not much leadership. There has been some speculative trading in biotechnology and solar energy, but even that has been choppy and narrow.
What is holding up this market is that market players are worried that they will not have sufficient long exposure if a fiscal-cliff deal is made. We have a very high percentage of funds underperforming this year and if they are caught underinvested again when we suddenly spike higher, it is just going to add to the pain.
On the other hand, loading up when there is the possibility the fiscal cliff negotiations could collapse while stocks are so lacking in energy is a real roll of the dice. What is particularly troubling is that even if the fiscal cliff is resolved, we are still dealing with a host of problems. The most recent is that the Fed seems to have run out of juice, and that has been the driving force for the last few years.
Retails sales are weak, Apple (AAPL) is struggling and there are many worries about fourth-quarter earnings. A resolution of the fiscal cliff may provide some confidence and certainty, but will it be enough to overcome the other issues?
For now, we are stuck and we will continue to dance to each new rumor about the fiscal cliff. The worst aspect of this is that nothing else matters right now. The Fed news was a temporary blip and now irrelevant again. Nothing in Europe is having any impact and we have to wait for corporate earnings in a few weeks. We are at the mercy of the politicians and that is never much fun.
AAPL is getting hit this morning on negative analyst comments and talk about a slow iPhone rollout in China. That is not going to help the tone of trading.