November 2, 2012
There's no question: November is going to be big. My inbox has been buzzing with questions about the U.S. economy and the Presidential Election in particular, so I want to take the time to brief you on what's to come in the month ahead. If you're feeling overwhelmed by the uncertainty in the market right now, you won't want to skip this blog post.
Now that Sandy has receded from the East Coast, Americans are returning their focus to the upcoming election. And thank goodness that the U.S. Presidential Election is just a few days away, because once we find out who is sitting in the Oval Office this January, much of the uncertainty that is weighing down the markets will immediately dissipate. So I believe that regardless of a Romney or an Obama victory, the overall stock market could easily rally from its current oversold position. Of course, the magnitude of this rally will demand on how pro-business the next President is.
The other thing causing people to fret is the impending Fiscal Cliff. Here, I must respectfully disagree with many of the major news groups that are selling us on various doom-and-gloom scenarios. In my opinion, this is a non-event, because Congress will most likely raise the deficit ceiling to avert any sort of crisis. Those who listen to Goldman Sachs' David Kostin's advice to cash out could regret it is a pro-business President is elected and the tremendous amount of cash on the sidelines is unleashed.
Interestingly enough, I expect the recovery efforts post-Sandy to boot economic growth. Because the 2,000 mile wide storm slammed a densely populated area, the beleaguered construction industry should be booming in the upcoming months. With this uptick in activity, I wouldn't be surprised if fourth-quarter GDP came in at an annual pace of 3%—or more.
Now that November is here, we are entering the seasonally strongest time of year for the market. Through year end, we'll see an uptick in pension funding (a phenomenon known as the "Early January Effect"). On top of this, the holiday season tends to make consumers and investors alike more optimistic—which should fuel increased spending on Main Street and higher trading volumes on Wall Street. Already we saw a 1.5% jump in third-quarter consumer spending, so forecasts that this will be the strongest holiday shopping season in four years are very encouraging. And when consumers are happy, investors tend to be happy too.
So while we've been stuck in a cyclical correction for some time, there are a lot of variables in the works that I expect to shake us out of this spin cycle. Of course, next week all eyes will be on the Election, so I'll make sure to keep you informed about developments on this front as well as earnings announcements and economic data.
Have a happy weekend!