The earnings season for Q4 is upon us: the holiday retail season was not the strongest and corporate revenues and earnings outlooks have been lowered. This nonsense we saw over the fiscal cliff and it’s effects in terms of the spending, investment and decision making of households and business are at best mixed via the data: strong non-manufacturing ISM, tepid manufacturing ISM, weak factory orders, weak construction spending, weak holiday retail sales, strong vehicle sales. The payroll tax hikes will not help.
We should be in for some interesting times. VIX at 13 handle (after it’s largest ever weekly drop of 39%) is way too low, and warns of complacency as equities reach a 5 year bull market high: we saw a ‘flash crash’ on Dec 20th in Globex and a huge equity swoon on Dec 28th ‘after hours’ and yet these moves have not been seen during regular hours, so we are contending with inefficient markets that could see sharp corrections
So looking ahead to the next few weeks, we have: the debt ceiling cliff, the sequester cliff, the earnings cliff, the post Geithner cliff, the dysfunctional Congress brinkmanship cliff. US public finances are in a mess and on an unsustainable footing. The EU debt crisis could give way to the US debt crisis. Time to pay the piper, as it were. The Republicans are sharpening their knives over spending cut demands in the upcoming debt ceiling debate. Still, 2nd Jan saw the best Dow day since Dec 2011 and the it’s biggest opening day of the year ever. Somewhere in all this, there is a gap to be filled.