What's ahead for the stock market

Investors will be watching as the debate over the Bush-era tax cuts heats up in Congress on the heels of November's disappointing jobs report.

By TheStreet Staff Dec 3, 2010 5:46PM

thestreetBy Shanthi Bharatwaj, TheStreet

 

The debate to extend the Bush tax cuts will likely gain momentum in the coming week, after a weaker-than-expectedNovember jobs report on Friday dashed hopes for a quicker recovery.

 

Headlines out of Europe will also continue to get attention amid hopes that the European Central Bank will be able to contain the debt crisis on the Continent.

Jeffrey Kleintop of LPL Financial expects the tone of the markets to be slightly negative in the days ahead. "Next week the data fades and the pendulum will swing back to headlines. The headlines are not going to be as favorable," he said.

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"There will be continued division within Congress over tax cuts. I don't think that will get resolved in the coming week . . . maybe two weeks later but not in the coming week. The eurozone issues will crop up again with questions about what is next for Portugal and Spain."

Kleintop, however, says investors could look forward to plenty of action in the subsequent week. "The markets could give back some of the strength we saw this week. It could be a good buying opportunity for investors ahead of the following week when we have Chinese manufacturing data, a (possible) decision on tax cuts and the meeting of the Fed, which I think is looking for something to prove after being challenged in the last month," he said.

 

The Fed was criticized last month about the inflationary threat of its second round of quantitative easing, totaling $600 billion, and its impact on foreign currencies.

 

Stocks got off to a strong start in December as a wave of better-than-expected economic reports offset concerns on the sovereign debt crisis in the eurozone. Expectations for a stronger recovery were tempered somewhat on Friday, after the Labor Department said the economy added only 39,000 jobs in November, far below the 140,000 economists were expecting.

 

With unemployment inching higher to 9.8%, Congress is under pressure to resolve uncertainties on taxes and to reauthorize extended unemployment benefits that expired in November.

 

Earlier in the week, President Obama appointed Treasury Secretary Timothy Geithner and budgets director Jack Lew to work with both parties in Congress to resolve the issue.

 

Republicans wish to extend the Bush tax cuts across the board permanently, while the Obama administration is willing to negotiate only a temporary extension of tax cuts for the wealthy.

 

If the tax cuts expire, individuals will be forced to pay higher taxes on their incomes as tax brackets move up. Capital-gains taxes will rise from 15% to 20% and qualified dividends will be taxed at the ordinary income bracket. Married couples will pay higher taxes; H&R Block estimates that a couple earning $80,000 a year could see an additional $221 withheld from their bimonthly paycheck.

 

The markets will also follow the current debate in Congress to reauthorize the extended unemployment benefits program that expired at the end of November.

 

Congress expanded unemployment insurance benefits by creating Emergency Unemployment Compensation (EUC) and 100% federal funding of Extended Benefits (EB). Those programs provide unemployment insurance benefits after a worker exhausts state benefits, helping when it takes longer to find a job. Those extensions began to expire Nov. 30.

 

The Labor Department estimates that 2 million Americans will lose aid by the end of the year if Congress does not act.

 

On Thursday the White House Council of Economic Advisers said in a report that failure to extend the program could cost 600,000 jobs in 2011 because of a drop in consumption.

 

For the last half-century, Congress has consistently extended unemployment benefits when economic circumstances were serious enough to make finding a job difficult. Given the current labor market conditions, failing to continue the extensions now "would be unprecedented," the report said.

 

Analysts expect an adverse effect on the holiday shopping season and retailers if the benefits expire. Investors will be following retail stocks, including Amazon (AMZN), Wal-Mart (WMT), Target (TGT) and Macy's (M), closely for any impact on the holiday shopping season, which so far has been strong.

 

News out of Europe will continue to be monitored even as concerns on the crisis showed signs of abating recently. Chris Low, economist at FTN Financial, said investors in the U.S. cannot ignore problems in Europe even though economic reports in the U.S. show signs of recovery.

 

"The thing about Europe is this isn't really a European crisis," Low said. "It is the continuation of the ongoing credit crisis. We can shrug off the problems outside the U.S. if we manage to tame those problems here. Two things need to happen (in the U.S. economy). One, jobs have to improve. And two, credit growth has to stabilize. There is not enough investment nor enough spending. The securitization market needs to come back. Fixing private-sector credit also will allow the government to back off their own borrowing a bit," he said.

 

Art Hogan of Jefferies does not expect the Fed to make any changes to its plans in the next meeting. "QE2 is already in place. It does not have to be readdressed," said Hogan, adding that the weak jobs report probably meant that the Fed had a good justification for going ahead with quantitative easing.

 

Initial weekly claims data, which will be released on Thursday, would be the biggest economic report to watch out for in the coming week. Jobless claims are expected to drop to 430,000 in the week ended Dec. 4, according to consensus estimates from Briefing.com.

 

The University of Michigan consumer sentiment index on Friday will be the other noteworthy report. Consumer sentiment is expected to climb to 72.5 in December from 71.6 in November.

 

Other reports next week include consumer credit data on Tuesday, mortgage applications on Wednesday, the wholesale inventories report on Thursday and the trade balance report on Friday.

 

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26Comments
Dec 4, 2010 12:42PM
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They should keep the capital gains tax intact at 15%,  they should not raise taxes on anyone, except those married couples making over $250K ayear.  Under 250K, keep it intact.  250K is enough for any married couple to make it on.  Taxes need to be raised, but, not on the middle class.  The rich are the ones with all the tax deductions, they should pay more taxes, after those deductions.  Legalize drugs, tax them, and abolish the war on drugs.  This would more than balance the budgets of the feds, states, counties, and municipalities.  It is a lost war anyway.  Turn loose the non-violent drug offenders from our prisons and save money there too.  It would open up another industry.  Hemp.  Lots of things can be made from it, including the clothes on your back.  Don't expect it to happen though.  Too much money is made off the war on drugs, and too many jobs are tied to that war.  Too  many foreign nations depend on our money for them to fight the war as well.
Dec 5, 2010 6:04PM
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Active IRA btw the Top 1% of wage earners pay 40% of the US taxes vs 20% in 1980, the next 9% pay 30% of the taxes, the next 40% pay 45% of the taxes so that top 50% of wage earners pay over 90% of the taxes.  Guess what the bottom 50% of the wage earners pay?  Less than 5% of the taxes.  Somebody is getting a lot of something that the other half is paying for!  Maybe the bottom half should get less or pay more or we should divide the country in half Smile

Dec 6, 2010 12:05AM
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 we ALL helped to create it and we ALL must help to slay it.

you may wish to revise that comment...it's the leftwing liberal's that created the mess, start with bubba who started to repeal the law's that saved wall street for 60 odd years...then came: if your a dumpster diver you get to own a home i case of empty bottles for down payment, any home you want it yours!!

no i haven't had to many...yetMartini glassOpen-mouthedMartini glass

Dec 5, 2010 7:31PM
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Active IRA, a Flat Tax of 17% for businesses and individuals with a $13,000 for each person (i.e. family of 2 26,000, 3 39,000, 4 52,000, etc.) and no other deductions except business get to deduction expenses has been proposed by some very knowledgeable individuals.  It would put a lot of accountants, CPAs, lawyers and politicians out of business not to mention H&R Block and the IRS.  Naturally, all of the aforementioned are against such a simple idea.   Bye, bye mortgage deduction as Obama's deficit reduction committee recommended.

 

Dec 4, 2010 3:31PM
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About the only thing I've seen out of QE2 is really big banks getting a lot of free money, so they can finance more mergers and acquisitions, which take away more jobs than they create. 

 

By the time it trickles down to everyone else there won't be much left.

 

But at least the good little boys and girls at Goldman, Citi, JP Morgan, and Bank of America will have have a very merry Christmas.

Dec 5, 2010 8:26PM
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Active IRA, We have to try something different and radical to eliminate the argument over deductions and tax rates.  The current tax code allows both sides (have vs. nots, right vs. left, etc.)  to continue the old arguments of divide and conquer.  We must lower government spending and raise taxes fairly and the answer isn't blaming overachievers that make more than $200k and allowing people to deduct expenses for their enjoyments ($1mil house, large families, etc.) while not paying their equitable tax share.  The per person deduction could take into account those other taxes and/or the flat tax would be after those other taxes.  The system we have IS NOT working.
Dec 5, 2010 3:28AM
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FINAL HOUR TO JOUST...

enjoyed the discussion, and God bless.

DITTO!

 

It wouldnt let me elaborate, but my brother was a CPA and business software writer.  Lesson from his life is to get outside and exercise before your health removes that option.

 

And, I gave up video games when I learned how $Million$ prizes ARENT PAID out through court action at the casinos.

 

sigh and nite

(still cant figure out why it rejected last comment.)

Dec 5, 2010 1:20AM
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The most fiscally responsible thing to do is let the unfunded Bush tax breaks expire and start paying down the deficit with the proceeds. 

 

There is no real evidence that these cuts stimulated anything...

 

...and jobs going overseas where the investment opportunity will be.

 

As for capital gains on gambling activity... ~d/101

Jobs are going overseas because companies are being sold to foreign owners.  Like SIEMENS buying a mfg company and taking those jobs back to Europe and keeping a few of the  former  engineers to manage the US warehouses.

 

As to your SPIN of unfunded Bush tax cuts,  why is okay for lil obama to do unfunded agenda, but not BUSH? (Unfunded isnt the right word to use in this matter, as its for SPENDING programs only)

 

And, even in the first years of the BUSH tax cut friends who made  $26k/yr were benefiting!

 

And, the stock market isnt true gambling, unless you use the WSJ dartboard. The only other option is  bank CDs and their rewards.

 

Many people do very well on WALL ST.  I did well in company 401ks using market thyme-ing! Hot

 

Even lived in Vegas and learned to be a successful compulsive gambler: always near break even.

 

Party

Dec 3, 2010 10:15PM
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Lets see, Obama is making a permanent welfare class by  removing a two year limit on welfare, then congress will probably forever keep extending unemployment to create a permanent class on the "dole"  Now he wants to raise taxes to further kill jobs.  And lets not forget the total opened-ended national health care where unions and other special interests (e.g. Congress ) don't have to participate or contibute.  It just keeps getting better and better.
Dec 5, 2010 5:29PM
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I suggest that all you miserable complainers go read the book titled "The Warren Buffets Next Door: The World's Greatest Investors You've Never Heard of and What you Can Learn From Them" and quit looking for scapegoats for you plight.   All politicians and the people that elected them for the past 80 years can be blamed for today's problems.  All financial entities must balance their books or go bust including businesses, individuals and governments.  We need to cut government spending AND increase taxes to the resulting level of spending with allowance for growth and inflation by external circumstances or ELSE.......

 

Dec 5, 2010 5:54PM
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(as I cant take up arms on sunday, Im going to let my assistant respond to only ONE errant example)

 

Lower drug costs for seniors
~a/RIA

Saddens me to see such gullibility to more OVAL OFFICE Hot Air!

 

First off,  for the second year SSec recipients are deprived of the annual COLA increase, not to mention the undelivered promise of $250.  (And all the price increases are just now coming to fruition, including at grocery stores and  cable costs.)

 

They did lower drug costs for basic generics, but the PART D plans went up from $18 to $45/mo,  copays went up from $35 to $45, and  the deductible was increased from $150 with Humana to $300.

 

Now tell me lil obama lowered senior medical costs?

 

Even worse is his idea of cutting Medicare costs by reducing  payments to MDs. All that does is send doctors to no longer accept new Medicare patients  or terminate them.

 

Almost everyone of your PRO posts are seriously flawed if you delve into it.

 

As to blaming Bush, lay off the alcohol in his PAST, and keep in mind the LOONEY LEFT  DEMS who were in control of Congress!

 

~lil ogre

Dec 5, 2010 11:39AM
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STARRING JIM CRAMER WITH HIS CO-STAR MATT LOWER:

 

Video: Is the U.S. economy bouncing back?

(a different story: NYT: Budget imbalances remind some analysts of the run-up to the subprime meltdown.)

 

watch his facial features and body movement and realize you should sell sell sell sell and sell and sell and get the heck out of the stock market! meet my two wittle friends Martini glassOpen-mouthedMartini glass(from scare face)Tongue out

Dec 5, 2010 8:43AM
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We are living in the "Ownership Society" of which the Bush Tax cuts are part of the foundation.  They reinforce the preeminence of investment income via trading in financial instruments versus building an economic foundation for employment.  In conjunction with deregulation of financial markets, the low tax rates on proceeds from trading give incentive to freeing money from long term investment that is the engine of employment.
To bolster this perspective, saw an October report in the Washington Post about a hedge fund called Harbinger Capital Partners.  It said that its founder's recent attempts to build a wireless company threatens to chase away his investors who expect their money to be invested for short term gains, not long term investment.  That's the current inefficiency of capital right now.  We have too much in play for short term trading and speculation and not enough working for long term.  Money should have to work as hard as anyone for its reward.  We've made it too easy for money to expect too much reward for too little work.

Dec 5, 2010 1:48AM
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LOL, you must be west coast ....

p.s. you play poker?

~a/ria

(It would be helpful if you posted your REPLY TARGET.)

 

Yes,  Im now on the north border of SEATTLE.  And, I played any video game, as I abhorred the controlling  characters of the table games.

 

As long as the US$ is low we can benefit from exporting. As to QE and even PUTS/CALLS,  they are beyond whats left of my mind, after my accident last decade.

 

But, I know enough economists to know they cant be trusted with your future, anymore then CONGRESS can!

 

Im really saddened to see that REAGAN isnt appreciated for what he did for AMERICA.   All his military spending created so many jobs that paid very well, compared for social spending.

 

You only have to look at what happens to local small businesses when companies like LOCKHEED leave.

In the 80s I ran a warehouse for a supplier to Lockheed suppliers and was suprised to see so many family-owned business supporting  the support class.

 

Anyways,  I WILL FIGHT NO MORE FOREVER  at least until I can get in a few points!

Thinking

Dec 4, 2010 11:34PM
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The most fiscally responsible thing to do is let the unfunded Bush tax breaks expire and start paying down the deficit with the proceeds. The next best thing is the Obama proposal which gives the same break to everyone equally on income up to 200k and 250k for couples. The most fiscally irresponsible proposal, as usual, is coming from the Republicans. I hope the party of NO sticks to its guns and the irresponsible unfunded tax cuts expire.

 

There is no real evidence that these cuts stimulated anything and I don’t expect much of a change when they expire. We will still be in a downward negative demand spiral for the next decade or so driven by most real investments and jobs going overseas where the investment opportunity will be.

 

As for capital gains on gambling activity, speculating income should be treated as normal income as in a flat tax. It doesn’t stimulate anything except more gambling activity. Speculating is a zero sum game with wealth being exchanged but no wealth being created. How they convince people that encouraging gambling stimulated the economy is a testament to the effectiveness of propaganda and how gullible some people can be.  

Dec 4, 2010 1:46AM
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The increase in unemployment has guaranteed more fed money in the pipeline.
Dec 4, 2010 6:56PM
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HELL  A/RIA~   HAVE YOU BEEN BANGING YOUR HEAD AGAINST THE TV SCREEN SHOWING FOX NEWS FOR NOT KOWTOWING TO  THE  ORATORY OF  OBAMA?

 

(Guess you never learned from dealing with car salesman who tell you what you want to hear and then FINE PRINT reality into the contract!)

 

1.  ... this crisis fulminated under the red nose of one dubya bush.

 

4. health care will be resolved in due time once the party of no gets out of the way.

~A/RIA

WOW, so much for your educational levels; real world reality is missing, though. 

And you wonder why there is mud being thrown at lil obama...  Its just return fire for the last 8yrs+!

 

Read the GWB book. No one understood what was going on behind the scenes, but your DEMS were all supporting it, starting with those paid off by  FANNIE/FREDDIE: DODD, FRANK, OBAMA.  (not to forget the bed relationship between Frank and F/F mgr.)

 

Both McCain and GWB tried several times to get action to stop the impending crash.  And, the only reason  GWB signed the Stimulus Bill was because it had some input from the GOP, but it was approved at a high enough % that it would of gone through either way; ie his signature mattered little.

 

And the DEMS even went on vacation in Sept rather then stay to save America because: "A bad economy would ensure a change in the White House!"

 

Local political dirty tricks by the DEMS were common in Portland OR for the decade I was there. Working next to a ballot drop site was educational!

 

And, then there are the LIES  GM tells about paying back its GOVT GIFT$.  Last week George Will told of the GM payback that actually came from a less known govt fund.

 

GM mgmt is the biggest roadblock to success.  Our future isnt electric vehicles, as batteries just arent there. Just ask any warehouse that uses electric pallet equipment.

 

The solution is in  LNG/Propane, and eventually HYDROGEN.

 

IMAGINE all the vehicles  of USPS, UPS, FEDEX,etc  using Hydrogen made as a byproduct from new NUKE plants that end the use of coal, oil, and rivers!!!

 

The FUTURE is within our grasp, if only Congress would stop taking lobbyist  $$$!

 

We need to change to TRIBAL ELDERS chosen from among Soc Sec retirees for single terms and researchers as a THINK TANKS rather then lobbyists.

 

SIGH/ foolish dreaming Ogre

Dec 4, 2010 1:24PM
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I look at FOX Business TV's "main man", Stuart Varney and he is British

LOU, LOU, LOU, LOU, LOU, LOU DOBBS, DOBBS, DOBBS, DOBBSMartini glassMartini glassMartini glass

 

IS COMING TO FOX BUSINESS NEWS, FIRST SHOW IN THE EARLY FIRST QUATER! Open-mouthed

 

TO BAD OBOOMA DIDN'T TAKE HIM ON AS AN ADVISER FOR FINANCIAL REFORM OR JANET'S JOB TO END ILLEGAL IMMIGRATION!

Dec 6, 2010 12:51PM
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Active IRA - You're Cherry picking again - I believe the Rhodes Scholar for Missouri still had the power of veto in 1999.  He's also the guy that lead the DOJ pursuit of antitrust against Microsoft that forced that company to move thousands of IT jobs to Asia and hobbled their innovation and integration for 10 years. It's  amazing how Apple lead by arrogant Steve Job's has been allowed to build a monopoly of proprietary hardware and software w/o any DOJ interference until the recent EU investigations.  Same goes with Google.  It's ok to be predatory as long as your socialist too.

 

Dec 5, 2010 4:09AM
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Ogre Alex, I know quite a few economists myself and they fall pretty much into two categories; true believers in the science/art and the gentleman C sellouts. The later are salesmen employed by industry that you see on TV and they for the most part cannot be trusted. The former are teaching or unemployed because they refuse to sell out for employment. ;)

 

Milton Freidman was a brilliant economist, but as an instrument of public policy he was a disaster. I reluctantly put him in the sell out category.

 

I find your comments on Reagan insightful. You have a greater understanding then most of how Keynesian theory was meant to be used; in very short spurts in a high tax environment. It is like most things in life a good thing in moderation and a very bad thing in excess which describes both Bush administrations.  

 

I would also like to point out that Reagan’s socialism, as you described it, for the workers of the military industrial complex would have made Mussolini proud. Furthermore, from an economic stand point social welfare is just another form of corporate welfare. Trickle up or trickle down it is all corporate welfare as the money all flows into the same hands.  Most of the major government contracting firms receive their nourishment from both fountains depending on which corporate socialist group is in power. They support both with equal enthusiasm. One causes the need for the other and either way the government contractors have skin in the game. Do not trickle will always produce the most economically efficient outcome.

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