Ahead of Wall Street - Dec 3, 2012 - Ahead of Wall Street
03 Dezembro 2012 - 10:43AM
Zacks
Monday, December 3, 2012
The apparent stalemate in the Fiscal Cliff talks is most likely
part of tactics from both sides. It is only reasonable to expect
them to haggle over each component of the final deal as one would
do in a bazaar. Perhaps that’s the reason why the market isn’t
overly concerned about the positions staked out by the two
sides.
We should be mindful, however, that the incentives for both
sides are not perfectly aligned. As such, the odds of not reaching
a deal in time to avoid the ‘cliff’ are not non-trivial, though
they are small.
‘Cliff’ aside, we have a busy week on the economic calendar, with
the November manufacturing ISM report coming out a little later.
The expectation is that we will get a modest pullback from the
October’s level of 51.7 due to Hurricane Sandy, but the index
should remain in expansionary territory.
The most important economic report this week of course is the
November non-farm payroll report on Friday. But as we saw with the
weekly Jobless Claims data in November, the Friday jobs report will
also most likely be distorted by Sandy. It is perhaps fair to
assume that the market will look past even a very weak reading on
Friday.
We will get a sense of the extent of hurricane distortions in the
Friday payroll data from Wednesday’s jobs report from
Automatic Data Processing (ADP). The service
sector ISM survey on Wednesday likely will have limited storm
related effects and should be around the same level as the month
before.
The ‘Cliff’ debate will likely continue to monopolize the market’s
attention most of this month. But at some stage, the focus will
have to shift to the fourth quarter earnings season. The
preponderance of negative guidance for the quarter has helped bring
down expectations for fourth quarter earnings growth, but we
haven’t seen much downward adjustment for full-year 2013
estimates which still show growth expectations in excess of
10%.
Given the broad economic weakness all around the world, it is
unlikely that we will get growth anywhere near that level. My sense
is that estimates for 2013 will start coming down as companies
provide guidance on the fourth quarter earnings calls. As such,
while Fiscal Cliff is justifiably the big issue for investors at
this stage, we shouldn’t lose sight of the deteriorating earnings
picture, either.
Sheraz Mian
Director of Research
AUTOMATIC DATA (ADP): Free Stock Analysis Report
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