Tuesday, November 27, 2012
The strong Durable Goods orders report this morning will likely be not much help diverting the market’s attention from the uncertain ‘Fiscal Cliff’ issue. That said, the internals of the report are quite good and should go some way allaying fears of an impending corporate spending slowdown.
Many of us had started worrying that the recent disconnect between confidence measures among consumers and businesses was due to the ‘Fiscal Cliff’ issue. But even if that isn’t the real culprit, the market’s primary focus today (and in the coming days) will be on this unresolved issue.
It is tempting to question whether the market is adequately pricing in the fiscal changes on tap next year due to tax increases and spending cuts. The reality is that irrespective of whether we fall off the ‘cliff’ or come to a negotiated settlement, next year’s fiscal picture will be more restrictive than has been the case thus far. And that will have a bearing on the economy’s growth trajectory.
This morning’s downward revision to the OECD’s economic growth forecast for the 34 members of the rich-country group reflects this realization. The OECD expects the combined GDP of the group’s members to grow at a slower pace in 2013 than what it expected six months ago (1.4% vs. 2.2%).
The group now expects the U.S. economy to expand at a 2% pace in 2013, down from its May forecast of 2.6% growth. For the Euro-zone, the OECD now expects the region to contract 0.1% instead of the 0.9% growth it expected earlier.
The expected changes to dividend tax rates due to ‘Fiscal Cliff’ related fixes is prompting a growing number of companies to pay out their dividends earlier. Companies that have already announced changes to their payout dates include Wal-Mart (WMT), Las Vegas Sands (LVS) and Dillard’s (DDS), to name the prominent ones. Taxes have a direct bearing on investment and consumption decisions for businesses and households. And these dividend change announcements are a reflection of this.
Director of Research