Here comes the Santa Claus rally
We could be on the cusp of a Christmas miracle as Main Street optimism overpowers Wall Street pessimism.
For weeks, there has been a rather large divergence between growing measures of consumer confidence, strength in the housing market, and buoyant retail spending and increasingly nervous CEOs and investors.
The latter have been obsessing over two large political unknowns: Will the eurozone get the Greek bailout back on track, and will Washington bungle the "fiscal cliff" negotiations?
So, as executives pulled back on hiring and spending, and traders sent stocks reeling, consumers kept humming along. As a result, with Greece getting another debt reduction deal, a batch of better-than-expected economic data Tuesday has the pessimists scrambling to unwind their bearish bets -- setting the stage for an end-of-year Santa Claus stock market rally.
Assuming, of course, Republicans and Democrats can agree on a short-term deal on the fiscal cliff.
Early Tuesday morning, leaders from the eurozone, the International Monetary Fund, and the European Central Bank -- after holding their third meeting on the Greek bailout/debt sustainability situation in as many weeks -- finally came to an agreement to extend more help to Athens after its conservative government passed painful new austerity measures.
Features include cutting the interest rate on Greek bailout loans, forgoing profits on Greek bonds, and other ideas that are projected to cut Greece's debt burden to below 110% of GDP in 2022.
While this won't solve all of Greece's problems -- it still needs to get its economy growing again and fend off ongoing political turbulence -- it's a step in the right direction and removes a major source of uncertainty in the markets.
This clears one of the two major hurdles we faced heading into the end of the year. Now, we just need a short-term extension of the "fiscal cliff" here at home so stocks and other risky assets can blast higher into 2013 fueled by a likely QE4 Treasury purchase stimulus out of the Federal Reserve in a few weeks.
Also contributing has been a bounce back in the economic data, which led Goldman Sachs to increase its Q4 GDP growth estimate to 1.8% from 1.4% today. Durable goods orders beat expectations in October. Manufacturing in the Richmond region rebounded in November. Home prices are steadily rising in the Case-Schiller index, up another 0.4% in September. And the Conference Board reported its consumer confidence index hits its highest mark since February 2008.
What's driving this? JPMorgan economists note that finished inventory levels have fallen to their lowest level since the current growth slowdown started early last year. In other words, when CEOs get nervous, they can try to insulate their businesses by doing things like pulling back on new orders. But if things don't fall off a cliff, and customers keep coming in, they will eventually need to replenish their warehouses.
So, somewhat begrudgingly, managers are restocking their shelves.
From a technical perspective, things are still looking good. The Nasdaq, after months in the doldrums, is finally enjoying some relative strength against the overall market. Save for a brief spell back in August, this hasn't been seen since March. Also, hedge fund types, based on the latest data from the Commodity Futures Trading Commission, are busily covering their most aggressive net short positioning against stocks in years and moving long. And options traders are feeling more confident, market breadth is improving, and cyclical economically-sensitive stocks are leading the way higher.
I continue to recommend my clients position for additional gains with a focus on energy and commodities. Ideas include Tesoro (TSO), up more than 10% since I added it to my Edge Letter Sample Portfolio last week. The ProShares UltraSilver (AGQ) is up 9.2% since I added it on November 9.
Disclosure: Anthony has recommended TSO and AGQ to his clients.
Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
This guy consistently writes worthless drivel. He's fun to read though. I'm not sure
if he's just incredibly stupid or only thinks everyone else is.
LOM.....In case you stop by....After 2 hours of research and application this A.M.
I put in orders for NLY.....Then within another 45 minutes of Research I cancelled them in favour of AGNC....Watch for maybe both equities to drop a little more in December...?
Where I think there might be a better buy opportunty.IMO.?
Off to a Casino.....Ciao.
This comment is addressed to all the STOCK BREWMASTERS
Read this and see if you find comfort in the current What House administration:
AFTER JAN 1, THE STOCK WILL PLUNGE TO BELOW 8,000.
And be prepared to speak Egyptian in case you don't have a CLUE.
AJBr may be onto something.
In the meantime, the President and Congress are all shorties. It's can kicking time. They're expecting a big pay day in January. 401k's got robbed in 2008-2009 and they're gonna get robbed again. Move your 401k money into your stable value fund.
Then . . . maybe it is time for a casino road trip.
How our expectations have lowered. Now we are awaiting the kicking of the can like it is a victory. The same for QE4. While they might lift he market for the Wall Streeters for a short time, why would this time be any different than the last 3? Judging by the law of diminishing returns, we might get a one day bump this time.
When any of the deficit issues actually get fixed, taxes will be going up and spending will be going down. The stock market will pop as it should have already done.
Obama makes me feel good ... he has been re-elected ... I just know things are going to get better
My 401k is going to make it --- yes --- I can feel it.
Let's see the Globe implodes or explodes on December 21st. 2012....hmmmmmmmm?
The PowerBall is going to be worth about a Half a Billion on Wednesday...hmmmmm?
I lost at Keno last night, but the drinks were good..If we win the PB Lottery; We could Party like there won't be a 2013...Hmmmm?
So it won't matter if the Markets collapse...Hmmmm?
All this Gambling chatter has me thinking about a Casino trip.....Hmmmmm?
V_L wrote....The Dow drops to zero on 12/21/12 because the Earth explodes.
Yeah buddy! This is one of the few insightful nuggets to be gleaned from all the post...
Quit picking on my Buddy, Antman...He does a real good job...Just don't take all his predictions too serious.....He does fine, that job ain't easy folks.
Maybe we should try your ideas ?? Got any ??
Ain't no President...Sliding down my chimney...He'll get a hot azz..
And it won't be Moochelle.....OMG, she is scarey.
Time to dump all over anyone who isn't saying the world will end..............
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