Stock Markets Continue Their Retreat From the Fiscal Cliff

Stock Markets Continue To Give Back their 2012 Gains

The weeks activity in the stock markets was very similar to much of the prior two weeks.  Fears of the Fiscal Cliff continue to weigh heavily both on the stock markets and on businesses willingness to commit to capital spending in 2013.

The S&P 500 reached it’s highs for the week soon after the markets opened on Monday morning.  However the markets failed to hold their Monday morning gains and stocks soon began a slow and steady decline that continued throughout the week.  The decline came to a halt around 11:00 a.m. on Friday when several Congressional leaders emerged from a meeting with President Obama and announced that they had agreed to a fast track negotiation process to reach a deal on the up-coming Fiscal Cliff.

Initially, the markets responded favorably to the news that progress was being made on the Fiscal Cliff.  However, once market participants realized that nothing of substance was agreed to in the meetings with the Congressional leaders and President Obama,  the rally in stocks soon came to halt.

The S&P 500 ended up losing 18 points this week and closed at 1,359 – a loss of 1.3% for the week.  The S&P 500 has now given up nearly half of it’s year gains over the past nine weeks.  After several weeks of declines the S&P 500 now finds itself up 7% for the year.

In the Photo Section is a Chart of the S&P 500 for the year 2012.

(See Chart of The S&P 500 in The Photo Section)

Apple, the market leading stock for the past three years, lost another $19 this week and closed around $528.  Ten weeks ago Apple was selling at $706 – it’s all time highs.  Technology stocks in general including Microsoft, Intel, Google, Dell have suffered the greatest amount of losses since the markets hit their five year highs on September 12th.

Announcement  – Complimentary Seminar for “The Fiscal Cliff & It’s Impact on You”.

Because of the significant impact that the Fiscal Cliff will be having on nearly everyone, Reliance Investment Management has prepared a seminar titled   “The Fiscal Cliff & it’s Impact on You”. 

The seminar will be held next weekend in three locations.  We invite you to attend.   At the end of the 90 minute session you will have an excellent understanding of the impact that the Fiscal Cliff will have on you.  The new legislative proposals found in the Fiscal Cliff will have affect your wage income, social security taxes, dividend and capital gain taxes, estate taxes, retirement income, marriage penalties, child care taxes and much more.

We will also present investment ideas that can capitalize on all these changes in the tax laws.  We will also comment on the types of investments that could be harmed.

We will be presenting The Fiscal Cliff & It’s Impact On You seminar at the following locations and times.  Admission is free.   Guests are welcome.

Sammamish Public Library           Saturday November 24th          10:30 a.m. – 12:00 p.m.

Issaquah Public Library                 Saturday November 24th           2:00 p.m. – 3:30 p.m.

Mercer Island Public Library                    1:30 p.m. -   3:00 p.m.

We are certain that you will find the information presented in this seminar very relevant to you and your family financial well being.

Local economy – Latest Monthly Employment Report  Shows an Improving Job Market.

On Thursday the Bureau of Labor Statistics (BLS) released the latest monthly employment report for October, 2012 for the State of Washington.  The Highlights of the report for October, 2012  are:

• The Unemployment Rate for the State of Washington fell to 8.2%
• The Unemployment Rate for the Seattle-Bellevue-Everett areas fell to 7.3%
• Washington State added 9,600 Private Sector Jobs October.
• Washington State Governments reduced 2,900 Jobs in October.
• Retail Jobs accounted for 35% of all new jobs
• Professional & Business Services accounted for 22% of all new jobs.
• Construction Jobs accounted for  16% of all new jobs in October.

In the Photo Section is a five year chart that compares the Unemployment Rate for the USA, the State of Washington & the Seattle-Bellevue-Everett areas:

(See 5 Year Chart of Seattle-Bellevue-Everett Unemployment Rate in The Photo Section)

It is important to note that the improvement in the Job Market is coming off of the worst levels in three decades.

Local Retail Sales Provides Confirmation of an Improving Economy

One of the most reliable of all economic statisics is Retail Sales.  Unlike so many other economic indicators that have a degree of estimating in their compilation – Retail Sales are the actual taxable sales reported to the government.  There are no estimates used in the compilation of  retail sales.

As you would imagine, when the economy is improving then retail sales are growing.  Likewise, when the economy is getting weaker then retail sales should also be weakening.

The State of Washington Department of Revenue compiles from businesses and reports the total retail sales by State, County & City.  The most recent report of total retail sales is for the second quarter ending June 30, 2012.

The Retail Sales reports shows good growth in retail sales have occured throughout King County for the second quarter in 2012.  Statewide, total retail sales increased by 4.7% year over year.  In King County, retail sales rose by 6.4% year over year.

In order to get a more accurate measurement of the local economic strength in your area,  we have prepared a summary table of the year over year changes in retail sales for several cities.  This chart shows that (except for Issaquah) retail sales rose in most every area in King County.  Most of the year over year increase in Retail Sales are by fairly healthy amounts.

We also found that Total Gross Sales reported to the State of Washington for the following Industries also showed promising year over year growth.

1. Wholesale Trade – 6.5% increase
2. Construction – 6.3% increase
3. Finance, Insurance & Real Estate – 6.1% Increase
4. New & Used Auto Sales – 13.2% increase
5. General Merchandise Stores – 4.7% increase

The strength in the reported retails sales provides confirmation that the local economy is growing at a rate in 2012 that is much healthier than the rate of economic growth in 2011.

Closing Thoughts

The Stock Markets reached their 5 year highs on September 12, 2012.  Since that time, there seems to be not one but three “cliffs”  that have emerged which has created an environment where money managers do not feel comfortable buying stocks on these declines over the past 10 weeks:

1. The Fiscal Cliff   -  which is creating an environment which is causing investors to sell their winners to lock in the lower tax rates in 2012  – The Fiscal lLiff is also causing business owners to remain cautious in planning for growth in 2013.
2. The Earnings Cliff  – This was one of the worst earning season in the past five years - especially for technology companies.  Many more companies lowered their next quarter business forecast in their earnings conference calls than in the recent past.
3. The Debt Ceiling Cliff – Sometime in February, 2013 – the USA debt ceiling will be reached and it will be up to Congress again to reach a resolution.  The last time Congressional leaders stepped forward to deal with the Debt Ceiling was  in 2011 – and  the markets responded to that attempt by Congress by correcting by 20%.

The recent market correction has affected every sector of the S&P 500.  Technology stocks have had the largest correction since the five year highs that were attained on September 12th.

In the Photo Section is a performance chart of all nine sectors (all 500 stocks in the S&P 500 fall into one of these nine sectors) of the S&P 500 since the top in the market on September 12th.   As you can see, all nine sectors of the S&P 500 have experienced losses.  Health Care & the Bank stocks have performed the best.  Technology has performed the worst.

(See the Perfromance Chart of The S&P 500 Since the Recent Market Top in The Photo Section)

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John Patrick Bray, CPA, is President of Bellevue-based Reliance Investment Management LLC  a Registered Investment Advisor Firm.

This communication reflects the opinions of Reliance Investment Management LLC and is being provided for informational purposes only and is not intended as a recommendation, an offer or solicitation for the purchase or sale of any security referenced herein or investment advice. It is being provided to you on the condition that it will not form the primary basis for any investment decision.  We recommend that you consult with your investment advisor before the purchase or sale of any securities. The information contained herein is of the date referenced and Reliance Investment Management LLC does not undertake an obligation to update such information. Reliance Investment Management LLC has obtained all market prices, data and other information from sources believed to be reliable although its accuracy or completeness cannot be guaranteed. Such information is subject to change without notice. The securities mentioned herein may not be suitable for all investors.