Fiscal Cliff, Europe and the Middle East Kill Sentiment

Michael Vodicka

President at Vodicka Group, Inc.
President and founder of the Vodicka Group. Licensed investment advisor and globally syndicated financial journalist.
Michael Vodicka

By: Michael Vodicka

“And don’t forget the Middle East, which looks on the verge of a full-blown ground war between a region filled with countries that despise each other.”

It was another tough week for stocks, with the average remaining under pressure as the Fiscal cliff continues to weight on sentiment. For the week the Dow and NASDAQ both fell 1.8% while the S&P 500 dropped 1.5%.

After this week’s bearish movement, the S&P 500 is now down 7.5% from its 52-week high from Mid September. Take a look at the S&P 500 year-to-date chart below: this is turning into a pretty sizable pullback.

 

 

 

 

 

The ongoing bearishness is largely being driven by uncertainty over the fiscal cliff, but something tells me that the lawmakers and politicians are going to surprise the Street with a resolution coming sooner than expected. That would be a real nice shot of confidence for the market and provide a short-term boost.

But even if the “cliff” is addressed, Europe is getting worse daily, with data this week confirming that the region has once again officially entered a recession. This is a major wildcard and will remain so until the region implodes into financial ashes or aliens come down from space and sprinkle Martian-O’s (the space equivalent of Euros) on cash strapped countries like Greece, Spain and Italy.

And of course there is still an ongoing slowdown in China and a slow-growth economy and earnings to contend with on the domestic front.

And don’t forget the Middle East, which looks on the verge of a full-blown ground war between a region filled with countries that despise each other. That’s definitely not doing the market any favors right now.

Just like the last few months, there just isn’t a whole lot to be optimistic about right now. The market is still severely lacking some kind of upward catalyst to give stocks and investors a shot in the arm.

So for the time being the plan remains staying patient. Having said that, with a 7.5% pullback in hand, it’s not a bad time to dip your toe in the water and deploy some cash. Maybe a small amount of your long-term deployment strategy. That’s what I plan on doing this week; deploying a little bit of the capital I have been hoarding for the last few months because I was cautious about buying any stocks after the averages ripped higher for 4 months from June to September.

Looking forward, the action should be a bit light this week due to the holiday shortened schedule, but we do have:

  • Monday: Existing Home Sales
  • Tuesday: Housing Starts
  • Wednesday: Consumer Sentiment

Updates:

Wal-Mart (WMT) saw a fairly sharp pullback this week, falling 6% after reporting third-quarter earnings that fell slightly short of expectations. Wal-Mart had seen pretty big gains on the year after blue chips became very popular with investors looking to play defense and pickup some yield. So in the bigger picture it’s a small setback for a good company and stock. Take a look below at how Wal-Mart has fallen with the weak market in the last few weeks.

 

 

 

 

 

Although Gold has been hanging pretty tough so far in the sell off, Double Gold (DGP) fell 2.5% on the week, pushing Market Vectors Junior Gold Miners (GDXJ) to an outsized 10.5% loss on the week. The miners have been brutalized for the last 18 months in spite of gold posting huge gains. A lot of that weakness is being driven by gold ETF’s that enable investors to invest in physical gold without actually having to buy bullion.

But I still think that miners will eventually rally on my forecast for gold to continue climbing indefinitely until the US and other countries ban individual investors from owning it because gold prevents the central banks from being able to manipulate their currencies and economies. You’ve been warned gold bugs.

And finally, to go out on a high note, AmeriscourceBergen (ABC), the drug and pharmaceutical wholesaler continues to trade directly below its 52-week high after reporting another strong quarter that came in ahead of expectations.

That’s all for this week, but until next time, here is a great article discussing how the era of inexpensive food is close at hand. That’s why I say it is and has been time to make huge investments in food and agriculture. Enjoy!

Very Few People Understand this Trend: Era of Cheap Food Over

Your Investment Partner,

Mike

Michael Vodicka is the president and founder of the Vodicka Group, Inc., a Registered Investment  Advisor  (RIA). He specialized in trading fixed-income derivatives at the Chicago Board of  Trade before  spending five years managing equity portfolios for a private investment research company.

Michael graduated from the University of Kansas with a degree in business communications and is registered with the State of Illinois and the SEC (Securities and Exchange Commission) as a Licensed Investment Advisor (Series 65).