The market proved to be much more cooperative this week, beginning with a 200 point gain on Monday and on its way to close out the best weekly performance in five months today. It’s debatable whether the exuberance was related to the positive tone coming out of Washington on their willingness to strike a deal or was really just a Happy Thanksgiving rally, but either way, we’ll take it. In either case, it seems certain that the markets were in a short term oversold situation after last week's drubbing.
If you’re like me, Turkey Day leaves you feeling hung-over from too much too much. Too much food, too much football, too much entertaining. It’s my favorite holiday, but I’m equally excited when it’s over. I get my house back and my routine back and I can go out and be entertained by others. For those of you following suit, here are the three market related trends worth knowing this week. Feel free to try them out on your friends.
Fiscal Cliff Euphoria
Nothing actually happened this week since Congress is on recess and President Obama has been in Asia, but markets got a boost from the apparent willingness of both parties to compromise. Expectations are for negotiations to begin in earnest next week and to continue through the lame-duck session. The questions are what kind of deal will be struck and how big will it be? It seems likely that they will do just enough to avoid a major disruption in the economy and then use the first few months of 2013 to really work out a longer term plan. As far as the market goes, CNBC's Bob Pisani predicts that traders will give Washington until December 10 to present some kind of deal before they start to panic. That’s only two weeks. Keep your fingers crossed.'
The Huffington Post has a pretty detailed (if opinionated) recap of actions and non-actions so far related to the fiscal cliff if you're looking for more information.
Dividend Surge:
We are starting to see a rush of dividend announcements for Q4. Not surprising given the pending tax hike on dividends at the end of the year. If Bush tax cuts are allowed to expire, the individual tax rate for dividends will go from 15% up to as much as 39.6%. We surveyed our customers earlier this fall and over half of them said they expected dividend habits to change as a result. e are starting to see their prediction come true. Most obvious, so far, is an increase in Special Dividends (3 times more special dividends declared in November 2012 than November 2011). We are also seeing some companies moving their normal payment date for standard dividends from January to December. While the tax hike won’t affect most institutional investors, it certainly will affect individual investors. Perhaps more market moving, is the potential that the big dividend paying stocks that have been considered the darlings of the market in 2012, could lose their luster in 2013.
Bloomberg Business Week posted a blog on this topic earlier this week.
Black Friday Sales Surprise:
There was an interesting article in the WSJ this week on the trend to start Black Friday sales earlier and earlier and how it’s not actually helping businesses and may even be hurting them. The point was that the size of the pie doesn’t get any bigger just because Walmart opens at 8pm on Thanksgiving and the cost of operating on a holiday makes the practice suspect. The good news is that early reports show a slightly improved economic situation translating into better sales. Walmart said this morning that they are having their best Black Friday ever. The expectations are for overall growth of 4.1% for the holiday season. We will have to wait until Monday to get the full data from the National Retail Federation, but all early indications are good.
A few other random facts:
Tech stocks made headlines this week led by Intel’s well received CEO transition announcement and HP’s much less well received $8.8B write down on last year’s $11B acquisition of software company Autonomy. HPQ traded down 12% on the news, dragging the Dow down with it. Check out this Reuters recap for more details.
Two insider trading cases broke this week. The first was a ring of high school friends turned health care executives who were charged with exploiting their access to sensitive information at Celgene, Sanofi and Stryker to generate $1.5 million in profits. That would have been really big news if the Feds hadn’t followed up by charging Mathew Martoma, a former SAC Capital portfolio manager, for using ill gotten information to reap a whopping $276 million in profits. In addition to being the biggest insider trading case ever, Martoma’s connections to SAC Capital’s founder Steve Cohen (one of the best known and most secretive hedge fund managers in the world), makes this case the most sensational thing to happen all year. No real influence on trading, but it certainly stole the attention of trading desks everywhere. To put this case into perspective, check out this WSJ Blog on the 7 biggest insider trading schemes of all time.
Since it's Thanksgiving weekend, you're more likely to be rehashing football games than economic data. The Lions/Texans match-up proved to be the most exciting game of the day, although painful if you're a Detroit fan. Nothing fun about losing a game to a bad call. As a lifelong Packer fan, it made me both smile and groan, 'cause we certainly feel your pain. It could have been worse, I suppose, the Jets forgot to show up for their Thanksgiving game against New England. Although as @Tedinjest posted on Twitter: If u don't count the second quarter, the #Jets beat the #Patriots 16 to 14.
