US stocks managed gains for a second straight week, as investors clung to a blind faith that politicians would resolve the looming “fiscal cliff” crunch.
The pending threat of higher capital gains and dividend taxes next year, whatever the resolution of the negotiations between Democrats and Republicans, failed to dim sentiment. Indeed, some stocks, like Costco and Walmart, advanced because of it, as firms announced special dividends and moved forward regular payouts to before Dec. 31, to avoid an expected increase in the tax rate.
The broad-based Standard & Poor’s 500 rose 0.5 percent for the week to end at 1,416.18. The Dow Jones Industrial Average of 30 blue chips gained 0.12 percent to 13,025.58, while the NASDAQ Composite added 1.46 percent, ending the week at 3,010.24.
Although the business and financial communities continued to warn the US Congress and the White House to reach a deal for averting the economy-crunching spending cuts and tax hikes of the so-called fiscal cliff, investors did not appear too worried.
Gains during the week were broad-based, with the crucial retail sector adding 2 percent on the back of solid sales at the beginning of the holiday shopping season.
However, weak consumer spending in the third quarter and the October to early November period — when the devastation from superstorm Sandy distorted the picture — made forecasting a challenge.
“Between Sandy and the fiscal cliff, the pace of consumer spending and business investment is really unclear,” Joel Naroff of Joel Naroff Economics said.
“The implication is that the October and even November numbers have to be evaluated carefully and may not reflect the true nature of either the consumer or the economy,” he said.
“Given the noise from Washington and the fears of tax changes to come, movements in the equity markets during December may also bear no relation to underlying economic trends,” he added.
Chris Low of FTN Financial said the markets were trading the headlines from Washington on nearly a minute-to-minute basis.
“The traders love volatility because that’s what generates their revenues, but for investors it is just frustrating,” he said.
Economists said that, after third-quarter growth was revised higher to a 2.7 percent annual pace, the signs are that the fourth quarter could slow to less than half that pace — especially as businesses hold back from investment due to fears over the fiscal cliff.
“Indeed, the Fed’s latest Beige Book report indicated that regional business activity is being held to a ‘measured’ pace in part by fiscal cliff uncertainty and the impact of Hurricane Sandy. As such, we expect Q4 growth of only around 1 percent,” IHS Global Insight economists Paul Edelstein and Nigel Gault said on Friday.
That makes economic data in the coming week more important for formulating a picture of the final quarter. Tomorrow will see releases of construction spending data for October, auto sales numbers for last month and the Institute for Supply Management’s (ISM) manufacturing index for last month.
On Wednesday come productivity figures and the ISM services sector index, and then on Friday the crucial job creation and unemployment numbers for last month. Those could show a hit from Hurricane Sandy.
However, the political showdown over the fiscal cliff and deficit reduction will still dominate the news.
“Markets will probably have to accept a few more weeks of brinkmanship before a deal is done. In the meantime, statements by public officials will swing equity markets to and fro,” IHS said.
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
CROSS-STRAIT TENSIONS: The US company could switch orders from TSMC to alternative suppliers, but that would lower chip quality, CEO Jensen Huang said Nvidia Corp CEO Jensen Huang (黃仁勳), whose products have become the hottest commodity in the technology world, on Wednesday said that the scramble for a limited amount of supply has frustrated some customers and raised tensions. “The demand on it is so great, and everyone wants to be first and everyone wants to be most,” he told the audience at a Goldman Sachs Group Inc technology conference in San Francisco. “We probably have more emotional customers today. Deservedly so. It’s tense. We’re trying to do the best we can.” Huang’s company is experiencing strong demand for its latest generation of chips, called
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure