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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56Comments
Dec 5, 2010 7:36PM
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Thinking hava, that is a good basic start to a discussion, buy i urge you to move past the micro/basic rate level analysis and on some macro issues:

 

1.  fact: the wealth distribution in America has moved HUGELY from the have-nots to the the haves.  the top 25% and top 1% control VASTLY more wealth now than they did in 2001. this trend is continuing, more acutely in the area of financial assets.

 

2.  fact: the relationship between tax rates and net worth has become DRAMATICALLY skewed since 1984. and how did this happen?  right, by allowing for lax regulation and absurd tax welfare for the rich while the debt rose from $2 trillion pre-reagan to the current $13.8 trillion.

 

3.  fact: if we wait until we hit the projected $25 trillion of debt by 2015 (see u.s. debt clock) then it will be too late to save our country from a greece-like default that may permanently damage our nation

 

4.  fact: the financial terrorists not only make up the top 1% but have the power to keep this evil structure in place.  Goldman Sachs multi-billions in bonuses, outlandish CEO pay scales and golden parachutes and stock options, the big five banksters, the insurance industry executives, the modern-day robber-baron families, the execs (cheney, et al) driving the wars to make incredible profits in the military industrial complex, the lobbyists, the corporate directors, and of course the incestuous politicians they all have in their pockets.  they will not stop.  but we can tax the be****** out of them.

 

let's get mad AND get even.

 

p.s. i am in the top marginal income tax bracket, so this will have a big impact on my net income, but it is the right thing to do. 

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 4, 2010 4:30AM
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Hot au contraire trail riding biker guy.  have you bounced into one too many boulders and tumbnled into one too many ravines?

 

1.  as for welfare, that would be a temporary measure to alleviate the situation caused by the super wealthy financial terrorists.  this crisis fulminated under the red nose of one dubya bush.

 

2.  ditto the unemployment INSURANCE extension.  these folks paid into the INSURANCE program and now should get their benefit payments.  federal unemployment has never been cut off in the history of its existence.  also, these folk spend 100% of the payments immediately which further stimulates the economy and keeps the US patient breathing. don't advocate policies that would sound the death knell for our country please.

 

3. ending tax welfare for the wealthy does not "kill jobs."  i say this as a cpa who prepares hundreds of tax returns, has an undergrad in econ, and an mba in econ/finance - and your "expert" background would be ????  there is a little something called DEMAND that causes sales to rise and jobs to be created. taxes are a minor inconvenience and administrative expense that our wealthier clients like to wine about as they drive away to there $750k homes in their $12k a year leased mercedes. demand and new jobs trumps taxes six days a week and twice on sunday.

 

4. health care will be resolved in due time once the party of no gets out of the way.  some repubs are now admitting that a national public option is necessary.  slow learners these guys.

 

Please start wearing a helmet!!! 

 

Dec 5, 2010 7:45PM
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I don't know hava, i am a cpa and you miss a couple of points that have been thoroughly hashed out over the years:

 

1.  the flat tax fails to take into account the hugely disproportionate share of disposable income that would be taxed due to all of the other taxes that the mid-to-low class pays: local earned income tax, fica taxes (mr and ss), sales tax, license tax (cars, etc.), gas tax, real estate tax, it goes on and on.

 

2.  most tax pros like myself are multi-faceted already since we can't do taxes year round. we do financial plans, law, investments, auditing and financial statements, etc. etc. and the AICPA (American assoc. of cpa's) has repeatedly offered tax simplification to congress.  we have other things to do.

 

the reality is that any intellectually honest tax pro WITH an econ background dismisses the flat tax as unworkable, mathematically unsound, an economic killer and a socio-economic nuclear weapon of mass destruction.  bad idea.

Dec 5, 2010 11:33PM
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Thumbs up as we both know, we must get this huge national debt beast under control and starve it to death.  we ALL helped to create it and we ALL must help to slay it.

 

difficult yes, impossible no.

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 5, 2010 12:48AM
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Thumbs up  great post disillusioned, but just a couple of comments (what else from me ; ))

 

1.  IF we get the debt reduction commission recommendations into play, the mortgage debt and healthcare premium deduction losses will slam the middle class pretty darn hard, so the the current obama plan makes sense for a couple of years and then take away the deductions when jobs are better

 

2.  right, i see it everyday - these docs and wealthy biz owners stash most of any tax cuts away in their private profit sharing plans that they separate as "highly compensated individuals" and the employees see none of it, and they certainly don't run out and hire anyone with no absolute demand forcing them to do it

 

3.  we part ways on the capital gains.  yes, this rate rewards stock market speculation but it also encourages long-term investment for biz owners like myself when we eventually sell the biz. it makes putting all of this time, borrowing, sweat, tears and employee training somewhat worthwhile since there is a small pot at the end of the rainbow.  cap gains rates at regular tax levels would discourage small biz formation and that is where the jobs really originate out of a downturn like this.

 

good post and interesting. 

 

 

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 4, 2010 5:32PM
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Crying  oh noble, wah wah wah wah wah.  sounds like my daughters when they were little and were told no we can't get that new doll you want. grow up.

 

after working thirty years at 70 hours a week with few vacations and now "cutting back" to 60 hours a week (in the office now on a saturday night) i not only can afford, but deserve, a nice steak dinner and a glass of wine whenever i d*** well please. it is called capitalism sir and this is America.

 

as for drinking there is a huge difference between enjoying a few drinks with dinner to take the edge off and whet the appetite as opposed to "drunkenness." how dare you have the unmitigated gall to begin publicly casting stones against others because of your petty bourgeoisie jealousies. boorish to say the least. 

 

then you take off on this nonsensical rant about trying to impoverish me when my efforts have created dozens of high quality jobs over the years providing valuable financial services to the middle class. how off balance can you get?  my comments have always been as follows: tax me at a reasonable rate and i will gladly pay it as long as we have a democratic republic - use it as they will as long as i get a vote and a public voice.

 

what a troll.

Dec 4, 2010 5:21PM
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Hot  glad, do you bother to read anything other than the headlines?  while i disagree with the tarp program that bush started (the "bail-outs") as they created moral hazard (sets up a company to make the same mistakes knowing it will get bailed out in the end), it happened and most of the companies have repaid the $. heck, look at GM which saved millions of jobs long-term and has now gone public, and now they make a cuter little SUV (equinox) that gets 32 mpg.  some of this is having a happy ending.

 

the stimulus and now QE are very separate, but necessary, monetary policies available to the fed.  strategic use of these policies has kept us out of great depression II in spite of the republican efforts to de-rail the economy in order to get elected.  bernanke is a genius.

 

imho, now, geithner is a goldman flunky, tax cheat, dweeb with a nervous tic that needs to go.

 

in the end, the current admin is doing a slightly above average job of running with the disaster ball tossed to them by dubya on the way out the door.  the amazing thing is all of the people with no short-term memories who want to keep returning to these failed tax and spending policies. wake up America.  Coffee cup

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 4:23PM
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Thumbs up  dunnunder, thanks for the reminder on that NYT article - i just re-read and meredith whitney merits listening.

 

we are often asked by clients why we remain 40-50% in cash and 10-15% in gold.  we simply tell them - because you don't know what we know about the potential, not probable, downside risks we face as a country, as an economy, and as investors.

 

hope this works out smoothly with more and more attention to fiscal austerity measures and a return to reasonable, progressive tax rates.

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

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