Thoughts on the Fiscal Cliff
Comment of the Day

January 14 2013

Commentary by Eoin Treacy

Thoughts on the Fiscal Cliff

Eoin Treacy's view The period between President Obama's re-election and the New Year was characterised by a high degree of volatility as investor sentiment ebbed and flowed on expectations for a compromise to the fiscal cliff. As it happens, the fudge than resulted from late night negotiations at the end of the year has done little to tackle the USA's fiscal issues. Automatic spending cuts and a raising of the debt ceiling have been delayed until late February which represents the next in a series of high profile deadlines. While we can expect political manoeuvring to be ratcheted up as we approach that date, the balance of probabilities remains in favour of additional fudges rather than a “grand bargain” which might resolve some of the outstanding issues.

Political vacillation has resulted in some large stock market swings with the post-election period characterised by a sharp decline which resulted in a short-term oversold condition, an impressive rebound which resulted in a short-term overbought condition, a partial retracement of that gain and a surge over the last couple of weeks. The S&P500 found support in the region of the 200-day MA from January 2 nd to form an upside weekly key reversal and improved on that performance last week.

Qualcomm, IBM, Johnson & Johnson, Merck, Pfizer, Coca Cola, Mondalez International, Heinz, Procter & Gamble, Colgate Palmolive, Kimberly Clark, Estee Lauder, Exxon Mobil, Wal-Mart and General Electric all formed upside weekly key reversals in line with the S&P and either held or improved on that performance last week. Disney, Sanofi, Eli Lilly and McDonalds all posted outside weeks and followed through to the upside last week. Clear moves below their respective early January lows would be required to question medium-term potential for additional upside.

The continued consistency of uptrends among the majority of Autonomies suggests that they remain among the most favoured of stock market vehicles. Therefore the emergence of the global middle class as a formidable profit centre remains a central theme despite local concerns on the sustainability of the USA's debt.

Back to top