Senate Majority Leader Harry Reid said discussions are "progressing", and Congress will remain in session all day. Senator Corker said that he thinks they'll get something done, but there likely won't be meaningful deficit reduction. I agree that if anything gets done today, it will just be preliminary and meaningful details will still need to be worked out in January.
Asian markets were mixed overnight. China led the action with a 1.6% gain after HSBC's final manufacturing PMI reading climbed to a 19-month high of 51.5. Japan was closed for holiday.
Europe's markets are mixed. France finished 0.6% higher after the French Supreme Court struck down a proposal for a 75% tax on citizens earnings over 1 million euros. Germany was closed.
Other than that there isn't much going on today. Everyone seems to be just sitting around waiting for the next headline out of Washington. What a terrible end to the year for the markets. Investors don't like when the investment landscape is clouded with political uncertainty. They would prefer a deal, any deal, so at least the economic impact can be quantified, price levels can adjust, and we can move on and figure out how to make money for our clients.
The 10-year yield is ticking higher to 1.73%. And the VIX is dropping -8.5% back to 20.78 after a big spike on Friday up to the 23 level.
Can someone please tell me how the volatility index can be down -8.5% and the inverse VIX etf (VIX) is down 1% and not up?? What a sham.
Trading comment: The market climbed the proverbial wall of worry in 2012. There was a lot of economic uncertainty, Europe almost came completely unglued, the election provided lots of ups and downs, and a fiscal cliff deal was never struck. All of that should have made for a pretty bad year for stocks, but the S&P 500 is poised to finish the year +11-12%. Not too shabby. And bonds did well also as interest rates continue to fade lower. I don't think 2013 will see the same benign action. I expect continued volatility, and think we could see another flare up in Europe as Spain's issues move to the front burner. We have used the lift in the stock markets since November to continue to pare back equity exposure and get more conservative in our asset allocations. I still think that is the prudent move heading into 2013. If we do get a big pullback at some point in the first half of 2013, we would look to put money back to work in equities as that would probably be a good buying opportunity. We shall see.
A happy, healthy, and prosperous New Year to all our readers!
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