Current Market Outlook - 01/07/2013

Market Outlook - 01/07/2013

S&P 500 closed at 5 year market high of 1466.47 end of last week for a gain of 4.57% for the week in one of the best weekly performances during last few years. Bulk of the market gains came on 01/02 after the market opened post the resolution of the fiscal cliff which came after we momentarily went over the cliff, since it wasn't resolved by 12/31 which was the deadline. US lawmakers came together to pass and clear the bill (look at my commentary from Market Outlook - 12/31/2012 where I indicated that the lawmakers would put together a fiscal cliff deal of some sort) which was sent to the President for his signature before it is passed as a law. All of this was done over 12/31 and 01/01 and by close of market on 01/02, S&P 500 had shot up 2.53%. As part of the deal Investors cheered the fact that the impasse and the fiscal cliff overhang does not exists on the market anymore.

Fiscal Cliff Deal

A last minuted deal helped the country avoid a dive over the fiscal cliff. The bill which was approved would keep the tax-rates in place for most Americans. The marginal tax rate will rise to 39.6% from 35% currently for taxpayers with $450,000 in joint income or $400,000 in individual income. There's also a 2% jump in the Social Security tax for Americans at all tax-rate levels. Additionally the capital gains and dividends taxation would apply at 15% rate across all taxpayers except for the topmost category for whom the rates were increased to 20%, i.e. the Bush era tax cuts was permanently extended for most taxpayers.

Market Economic Indicators

Economic indicators from last week came in pretty well. ISM (Institute of Supply Management's) U.S. manufacturing factory index rose for the month of December 2012 to 50.7 from 49.5 in November 2012 and above the median forecast of 50.5 by economists. A value above 50 indicates expansion whereas a value below 50 indicates contraction. ISM non-manufacturing (service industries) index rose for the month of December 2012 to 56.1 from 54.7 in November 2012 and above the median forecast of 54.1 by economists. Non-manufacturing industries like construction and retailing reported growth in December. 

Labor report by ADP Research Institute showed 215,000 jobs gain for December 2012 from November 2012 adjusted value of 148,000. Non-farm payroll report by BLS showed (U.S. Bureau of Labor Statistics Non-Farm Payroll Report - Dec 2012) employment gain of 155,000 and the jobless rate held steady at 7.8%.

Based on the breakout of the different indices (including S&P 500, Russell 2000 index of small-caps, Dow Jones Transportation Average) this market has the potential to continue adding on to gains for the next few weeks, after which we may hit some volatility as the debt-ceiling talks heats up and correction may set in. Also earnings season starts the coming week with the aluminium giant Alcoa (NYSE:AA) kicking off the earnings on 01/08 after close of market. Additionally I would be looking forward to the reports out of CES (Consumer Electronics) Show in Las Vegas to pick up technology cues for this year and what's trending in technology.