It was another down week on Wall Street, but the stock market showed a few signs of life Friday. The bounce came after President Barack Obama met with congressional leaders at the White House for negotiations on the fiscal cliff.
House Speaker John Boehner (R-Ohio), Senate Majority Leader Harry Reid (D-Nev), Senator Mitch McConnell (R-Ky.) and Rep. Nancy Pelosi (D-Calif.) hit the right notes of bipartisanship when they met with the media after the discussions, but plenty of skepticism remains over when or whether a deal will get done. (See "Lawmakers Talk Compromise, Give Stocks A Lift.")
The Dow Jones industrial average closed with a 0.4% gain to 12,588, the S&P 500 added half a point to 1,360 and the Nasdaq paced the modest advance, climbing 0.6% to 2,853. For the week the Dow and Nasdaq fell 1.8% apiece, while the S&P dropped 1.4%.
The fiscal cliff stayed top of mind a week after President Obama won re-election, and with the threat of severe tax hikes and spending cuts still on the table it's worth wondering if buyers will stay away until Congress proves it can reach a compromise:
Schwab’s chief investment strategist Liz Ann Sonders, noted the the well-known absence of “bond vigilantes” — or traders bailing on debt for lack of confidence in a borrower’s capacity or willingness to meet its obligation — in the U.S. following last summer’s ratings downgrade by S&P, but pondered whether there might be “stock market vigilantes,” and suggested some of the selling might be a market protest against, or expectation of, Congress’ inability to cut a deal.
via Has The Fiscal Cliff Brought Out The Stock Market Vigilantes? - Forbes.
Earlier in the week, Obama met with high-profile business leaders from companies like General Electric, Procter & Gamble and Ford Motor, but notably snubbed Wall Street's top executives. Goldman Sachs CEO Lloyd Blankfein, among the uninvited, urged lawmakers to work together in a Wall Street Journal op-ed, as Abram Brown explained:
Blankfein recognizes a key fact: “Any political agreement to cope with the ‘fiscal cliff’ will require flexibility and shared sacrifice that some in both parties seem unwilling to allow.” He rightly realizes that the best solution will require a mix of measures that increase government revenue and cut some costs.
via Goldman's Blankfein Urges Politicians To Help U.S. Business Put $1 Trillion To Work - Forbes.
Most of the week's focus was on Washington, but traders also got a fresh batch of corporate earnings to digest. J.C. Penney reported a disastrous quarter awash in red ink, while Cisco Systems came out on the opposite side of the coin. Agustino Fontevecchia reported John Chambers' chipmaker cruised past expectations and was rewarded with a big stock bump:
Cisco posted first quarter earnings after the bell on Tuesday, beating top- and bottom-line estimates on what chief executive John Chambers called a “record” quarter.
via Cisco Rallies On Earnings Beat As It Sits On $45B In Cash; Guidance In Line With Estimtes - Forbes.
Apple and Facebook remained in the spotlight this week, Facebook with a surprising advance even as more than 800 million shares were freed from post-IPO selling restrictions. The social network finished up 23% for the week. Apple, meanwhile, continued to suffer and flirted with the $500 threshold Friday before an intraday reversal. While the comeback may be an oversold bounce more than anything, there are some who think the slide has run its course and the next move is higher:
Things have changed though, and with Apple plunging to almost $500 Friday Ross thinks the path of least resistance for the short-term will be more friendly to the bulls. “My take is I have not liked this stock for a while, but I love it here.”
via Apple Bounces After Flirting With $500: Time To Buy? - Forbes.
The week ahead will undoubtedly include more headlines on just how willing Democrats and Republicans are to meet somewhere in the middle on spending cuts and tax increases, along with quarterly earnings reports from the likes of Best Buy, which recently unveiled its latest turnaround effort.
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