Another week is history and we’re another week closer to the “fiscal cliff.” You can’t turn on the TV or surf the internet without some reference to the fiscal cliff. But, consider this. Remember all the fuss about Y2K back in 1999? Everybody was worried about planes dropping from the sky at midnight, ATMs freezing up, and the power grid shutting down on January 1. Well, the clock struck midnight and, poof, like Cinderella’s glass slippers, nothing changed. Perhaps it was all the preparation ahead of Y2K that ensured it would be a non-event. In fact, one could argue that all the upgrading of equipment and intense preparation that went into the buildup toward Y2K helped propel the economy and fan the tech bubble that culminated at the turn of the century. Then, as you may know, it was right after Y2K that the stock market went over its own cliff and fell into a bear market. Now, here’s where it gets interesting...
After all the huffing and puffing of the election, the fiscal cliff, and the Dancing With the Stars season finale, the U.S. stock market ended the month of November within 0.3 percent of where it started, according to The Wall Street Journal. Although the return for the month was basically flat, a chart of the daily returns looked more like a healthy man’s EKG. From the closing high of the month to the closing low, the S&P 500 dropped 5.3 percent. Then, from that closing low to the last trading day of the month, the index rose 4.6 percent, according to data from Yahoo! Finance.
We expect the Federal Reserve (Fed) to continue Operation Twist at this week’s Federal Open Market Committee (FOMC)meeting. Before ending quantitative easing (QE), the Fed has repeatedly said it is looking for “sustained and substantial” improvement in the labor market. The Fed’s communication policy is likely to be at the heart of the agenda. Looking ahead, the rotation to new FOMC members in January 2013 is unlikely to significantly impact monetary policy in 2013.
Our Beige Book Barometer “window on Main Street” is consistent with other more quantitative metrics on the U.S. economy that suggest that the economy remains in a recovery, and is growing at around 2.0%. But, Main Street has a long way to go to get back to “normal,” pre-Great Repression levels. Uncertainty concerning the fiscal cliff and concerns over Superstorm Sandy dominated the latest Beige Book. The latest Beige Book also confirms that the financial media is blowing Europe and China out of proportion.