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Market at Mercy of Fiscal Cliff Until Resolution

December 5, 2012

As we begin the final month of the year, it's worth noting that December has been the strongest month of the year for the Dow Jones Industrial Average since 1900—up 72% of the time—with January also showing above-average strength. Decembers have been even stronger when the market's performance has been healthy through November. That said, none of those prior years had a fiscal cliff associated with it.
-Liz Ann Sonders, senior vice president, Charles Schwab

 

In a scene being played more and more these past few years, politics is dominating the market landscape. It brings an additional note of uncertainty into the picture, particularly since neither political party is trusted, according to recent polls, which show a record-low approval rating of Congress overall. One would think/hope that our elected leaders would understand the serious predicament our economy is in…one would think.

K Street controlling Wall Street

The stock market's correction this past spring was largely about economic fundamentals. But the stock market's correction from mid-September to mid-November was mostly about politics and the "fiscal cliff" and less about traditional fundamentals. The former manifested itself in sentiment indicators, which are often drivers of market movements in the short term.

As we begin the final month of the year, it's worth noting that December has been the strongest month of the year for the Dow Jones Industrial Average since 1900—up 72% of the time—with January also showing above-average strength. Decembers have been even stronger when the market's performance has been healthy through November. That said, none of those prior years had a fiscal cliff associated with it.

We haven't attempted to predict the political outcome of the cliff and can only try to be objective analysts with the data at our disposal. Today's report will review the sentiment, technical and valuation conditions of the market in light of the recent pullback and subsequent partial recovery.


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