Back from holidays for just a day, and Congress has already rattled the stock market, a trend that will continue until the "fiscal cliff" is resolved.
Wednesday's economic data includes new home sales at 10 a.m. ET and the Fed's beige book on the economy at 2 p.m. "I don't think either of those are going to do anything to the market. It's what's the comment of the day is going to be. Today we had Harry Reid. Tomorrow maybe we have someone else that's more positive. I think that's what the market is waiting on," said Scott Wren, senior equity strategist at Wells Fargo Advisors.
Stocks meandered much of Tuesday until a comment from Senate Majority leader Reid mid-afternoon that fiscal cliff talks were making "little progress" sent the market lower. The Dow (Dow Jones Global Indexes: .DJI) finished the day down 89 at 12,878, and the S&P 500 (^GSPC) was down 7 at 1398.
"I really think it's all fiscal cliff comments right now, but my personal feeling is we're not going to roll over the fiscal cliff," said Wren, adding it's more likely Congress will find some weak compromise and push off some of the work into next year.
"I'm expecting some contentious comments. It's not going to be smooth sailing, but I really do feel that the market would be okay with them kicking it down the road or seeing a little progress...I think in 2013, the market is going to start to demand that things get done on this," he said.
"Whatever the compromise, it's going to be enough to satisfy the market," he said, adding stocks won't go much higher until there's a bigger resolution. The cliff is the more than $500 billion in taxes and spending cuts that could hit the economy if Congress doesn't take action to come up with alternate plans.
Wren said retail investors remain scared, are underinvested in stocks, and even with the cliff talks, they should be slowly putting money to work. Yet, surprisingly the consumer is showing rising confidence. Consumer confidence Tuesday rose to 73.7, its highest level since February, 2008.
"Confidence has surprised me a little even though we expected it to work higher as we move into 2013. This has been more than what I thought it would be," he said.
The improving picture for housing has gone a long way to help the consumer, with home price data coming in better than expected Tuesday. New home sales Wednesday are expected to be 385,000, down slightly from last month.
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Investors are also watching fixed income markets, where corporate bond issuance set a milestone Tuesday. Investment grade debt issuance this month crossed the $100 billion mark, making it the busiest November ever, according to Thomson Reuters IFR. Companies, including Disney (DIS) and Murphy Oil (MUR), sold more than $10 billion worth of bonds Tuesday. The calendar remains busy as companies rush to issue new debt before year end, in part for fear fiscal cliff talks could sour the market.
At the same time, credit quality is peaking, says Joel Levington, managing director of corporate credit at Brookfield Investment Management. "What I mean is you're going to see companies use leverage in 2013, whether it's in the form of cash to fund dividends, or more likely for acquisitions and share repurchases. That will be a trend that you'll see throughout the year," he said.
What Else to Watch
Earnings are expected from American Eagle (AEO), Ann (ANN), Express (EXPR), Fresh Market (TFM), and Suburban Propane (SPH) ahead of the opening bell. After the bell, Pall Corp (PLL), Aeropostale (ARO), Guess (GES), La-Z-Boy (LZB), and Tivo (TIVO) report.
Goldman Sachs (GS) CEO Lloyd Blankfein, Home Depot (HD) CEO Frank Blake and other corporate leaders are expected to meet with President Barack Obama and Vice President Joseph Biden to discuss the fiscal cliff.
SAC holds an investor call and senior managers are expected to field questions about the Mathew Martoma insider trading case.
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