Salient to Investors:
Money managers said fears that the US economy will slow as Obama and Congress fail to avert the fiscal cliff are overblown. Volatility across markets has declined, signaling investors are less worried about the economic outlook.
Bettina Mueller at Deutsche Bank is astonished the market is turning so quickly, and expects the fiscal cliff will be resolved. Mueller cut holdings of Treasuries to underweight from neutral after the election on speculation the rally was overdone.
Mohamed El-Erian at Pimco sees as much as a 70 percent chance that lawmakers will avoid the fiscal cliff, and said no one in their right mind would push our country into recession.
Jeffrey Rosenberg at BlackRock likes corporate bonds and dividend-paying stocks.
Chris Iggo at Axa Investment Managers likes lower-rated investment-grade and speculative-grade corporate bonds, and says the fiscal cliff will beavoided. Kathy Jones at Charles Schwab, who expects a decision on the fiscal cliff in the next months, likes high-quality short- to medium-term bonds. Jay Schwister at Baird Advisors asked what level of crisis is required to give politicians on both sides enough cover to come to the middle and make a compromise?.
Barry Knapp at Barclays said the election left the split between Democrats and Republicans intact – the worst possible outcome because both sides can claim a mandate for their policies. Knapp sees little reason to increase the probability of avoiding the tax cliff or brinksmanship over the debt ceiling, or to expect pro-growth tax and entitlement reform in 2013. Knapp sees the 10-yr T-yield falling to 1.5 percent by year-end.
David Stockton said there’s a significant amount of fiscal restraint already baked into the cake.
The US economy is strengthening – from jobs to housing to consumer confidence to international trade. China’s exports rose 10 percent in both October and September from a year before versus gains of less than 3 percent in the prior two months. Companies worldwide are borrowing in capital markets at the second-fastest pace on record and at the cheapest rates ever.
The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose to 84.9 in November, the fourth straight increase and the highest since July 2007.
Barclays and JPMorgan expect the economy expanded at a 3.2 percent annual rate in Q3. Richard Weiss at American Century Investment said the consumer is too large to make hairpin turns and has slow but strong momentum which will push us into 2013 regardless.
Corporate borrowers around the world have sold $3.45 trillion of bonds this year, second only to the $3.93 trillion issues in all of 2009. Chinese exports rose at the fastest pace in five months in October. German retail sales increased for a second month in September.
The median estimate of over 80 economists and strategists expect the 10-yr T-yield to end 2013 at 2.32 percent.
15 Wall Street strategists predict the S&P 500 will rise 14 percent to 1,585 by year-end 2013 as earnings climb about 5 percent, implying a P/E of 14.9, or 9 percent below the average since the 1950s.
Paul Zemsky at ING Investment Mgmt is bullish, saying fundamentals are good and stocks are not expensive.
Terry Belton at JPMorgan Chase said the 10-year T-yield of 1.68 percent implies a recession in the next year, which is out of synch with economic data that signals the economy will continue to grow and expectations that the political impasse will be resolved. Belton said many things have moved where investors should take more risk – just the resolution of the uncertainty will be an important catalyst for markets and push equities higher and 10-yr T-yields to 2 percent by the end of 2012.