The Market Missed That One

 | Dec 21, 2012 | 7:53 AM EST  | Comments
  • Comment
  • Print Print
  • Print

Surprise, surprise, surprise! -- Gomer Pyle

For several weeks now the market has been very optimistically predicting that a fiscal cliff deal would be made before the end of the year. What the market didn't count on was that Speaker Boehner would come up with a plan that neither the Democrats nor Republicans would accept.

No one expected Speaker Boehner's Plan B to pass the Senate, but the assumption was that it would make it through the House and be the basis for further negotiation. That turned out to be a very poor assumption and now the chances of a deal before the end of the year look remote.

What is particularly interesting is how the market didn't see this coming. The market is often given great respect as a discounting mechanism that prices in future events, but it was just dead wrong in this case. We even had a late rally yesterday in front of the Plan B vote as market players anticipated that a deal would eventually emerge from the political maneuvering. 

The big problem, of course, is that the market hates this uncertainty and no one knows how much longer it is going to drag out. The Democrats weren't even going to accept Boehner's compromise deal and they are just going to laugh at what some of the House Republicans are demanding.

The good news is that it has been very difficult to put money to work in this market recently, so hopefully folks aren't too heavily long. A pullback here will give us some new opportunities, but the timing of this action really causes a high level of chaos. I suspect many market players are simply going to shut down now and enjoy the holidays rather than suffer through more of this painful political sideshow.

One of the other negative consequences of this failure to make a deal is that it may push more market players to lock in profits and harvest capital gains out of fear of being hit with the fiscal cliff tax increases. A retroactive deal can be made in 2013, but there is some real danger now that we will be hit by substantial tax increases as the politicians drag this out.

Technically the S&P500 has had a very nice run for a month as it anticipated a deal, but now it looks like we will quickly test support at the 50-day simple moving average around 1413.  That will put the recent uptrend in question and many will be looking for downside momentum to build as the fiscal cliff takes a toll on the economy.

One of these days we will have a market again where we can focus on stock picking rather than central bankers and politicians, but today is not the day.  We are handcuffed by the headlines and many market players are simply going to throw in the towel and ignore this market for a while.

We'll see if we have any sort of bounce after the open, but it is likely that many market players will be using strength as a means of escape. I will be in no big hurry to add long exposure right now.

Columnist Conversations

The semiconductor sector performed poorly today with the Market Vectors Semiconductor (SMH) fund down over 2% ...
Is this the biotech revolution or the biotech bust? View Small Cap Biotechs Like Never Before: Transparency is...
ive tried to sense how these new rules can possibly be good for the mkt--and struck out trying. the investmen...
Skip Raschke and I have been talking about THIS behind the scenes. Note the following excerpt: "The rules also...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.