US Indexes Ease As Fiscal Cliff Wrangling Continues; Europe Wobbles On Uncertainties

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

US stocks turned lower, sending the major equity averages down for a second straight day, as Democrats stuck to their guns on raising taxes for the richest Americans and eurozone differences continued to fester over a new banking regulator in the single currency bloc.

In the latest round of US budget negotiations, the White House rejected a Republican offer for tackling the fiscal cliff that omitted higher tax rates for top earning Americans. President Obama had proposed $1.6 trillion in new taxes last week to bring down the budget deficit by $4 trillion over the next decade. Republicans made a counter offer Monday that included tax reforms and changes to Medicare and other spending cuts worth $2.2 trillion over the next decade.

The Dow Jones Industrial Average (DJIA) fell 14 points, extending losses into the second session. Breadth turned slightly negative with decliners outnumbering winners 16 to 14.  The S&P 500 Index (SPX) shed 2 points with telecommunications faring the worst and industrials fronting the gains among its 10 business groups.

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More Fiscal Cliff Rhetoric With No Tangible Results; Weak Data Pulls Down Indexes

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

US equities finished lower as politicians in Washington restarted the rhetoric on how to manage the nation’s fiscal policy, and a measure of factory output showed unexpected contraction in November.

The Institute for Supply Management’s index of manufacturing activity dropped to 49.5 in November from 51.7 a month earlier, signaling contraction for the first time since July 2009. Economists polled by Bloomberg had expected a reading of 51.4 and attributed the decline to concerns about the so-called fiscal cliff rather than disruptions due to Superstorm Sandy. The fiscal concerns are affecting business decision making as companies put spending and hiring decisions on hold

US equity indexes have signaled cautious optimism over the past two weeks and with less than 29 days left to the edge of the fiscal cliff before billions of dollars in automatic spending cuts and tax hikes come into effect, house Republican leaders unveiled a counter offer to break the negotiations stalemate. According to House Speaker John Boehner, the new proposal takes a middle ground approach and counts $800 billion in new revenue through tax reforms.

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ETFs/Mutual Funds On The Cutline – Updated Through 11/30/2012

Ulli ETFs on the Cutline Contact

Below are the latest ETF Cutline reports, which show how far above or below their respective long-term trend lines (39 week SMA) my currently tracked ETFs/MFs are positioned.

The first report covers the ETF Master List from Thursday’s StatSheet and includes 398 ETFs, of which currently 332 (last week 308) of them are hovering in bullish territory.

The second report includes only High Volume ETFs. To clarify, High Volume (HV) ETFs are defined as those with an average daily volume of $10 million or higher.

These ETFs are generated from my selected list of some 93 that I use in my advisor practice. It cuts out the “noise,” which simply means it eliminates those ETFs that I would never buy because of their volume limitations. 73 ETFs (last week 72) have managed to remain in bullish territory after the recent market volatility.

The third report covers Mutual Funds on the Cutline. There are currently 701 (last week 217) above the line and 158 below it out of the 861 that I follow.

Take a look:

1. ETF Master Cutline Report

2. ETF High Volume Cutline Report

3. MF Cutline Report

In case you are not familiar with some of the terminology used in the reports, please read the Glossary of Terms.

Last Week In Review: ETF News And Blog Posts To 12/2/2012

Ulli Market Review Contact

In case you missed it, here’s a summary of the ETF topics and market reviews I posted to my blog during the week ending on 12/2/2012.

A nothing week came to an end as the S&P 500 ended just about unchanged with hope, followed by concern, about the fiscal cliff games keeping the indexes in a tight trading range, however, with a slightly upward bias.

I would expect more of the same in the coming weeks until one of the negotiating parties either caves in or the fronts harden even further as the new buzzword is ‘un-compromise,’ which very likely would cause the markets to have a tizzy fit as time simply runs out.

Over past week, we covered the following:

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One Man’s Opinion: Does Monetary Policy Improve Structural Unemployment?

Ulli Market Commentary Contact

Federal Reserve Chairman Ben Bernanke has little control over US monetary policy and by using up all the traditional ammunition called the basis points by taking the Federal Funds Rate down to zero and indulging in this experimental medicine known as quantitative easing, Bernanke has pretty much abdicated control over the traction between the monetary policy and real economy, says Stephen Roach, a professor at Yale University and former non-executive chairman for Morgan Stanley in Asia.

“Flying blind” is one way to put it and Bernanke is hoping for the best trying to recreate an asset dependent US economy where the transmission effect goes from the unstable assets markets to the real economic decisions and it’s not going to work, Roach added.

Asked to define austerity and give his opinion on “deficit scolds”, Roach said it’s a cleverly coined word, and he doesn’t understand Nobel Laureate Paul Krugman’s opinion on fiscal responsibility. The idea is to draw the contrast between the short-term and the long-term, Roach observed.

The anti-austerity camp says since these economies are suffering right now, austerity should not be considered while the austerity advocates say maybe we should consider where the debt trajectory is headed for the longer term rather than focusing on short-term implications and take actions to control medium and longer term fiscal excess. It’s really a debate over time horizons, he noted.

Dallas Fed President Richard Fisher has been critical of the Fed’s latest move on quantitative easing and has said the central bank should cap or at least put a target on balance sheet expansion.

Would that be more credible?

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New ETFs On The Block: Market Vectors Preferred Securities Ex-Financials ETF (PFXF)

Ulli Income ETFs Contact

Market Vectors, the ETF issuer from investment firm Van Eck, launched its first product in the increasingly popular preferred stock segment with a unique twist; the product excludes financial companies.

The Van Eck Market Vectors Preferred Securities ex-Financials ETF (PFXF) is the first product in the segment that excludes financial companies such as banks, broker-dealers, investment advisers and futures commission merchants from its portfolio, giving the fund completely new risk-reward characteristics.

The company believes removal of financials would result in less volatile products as research showed financials have been the most volatile sector in the past five years while standard deviation (a measure of price fluctuation) for financials has been nearly double than non-financials even though dividend yields have been less than 20 basis points more per year.

PFXF follows the Wells Fargo Hybrid and Preferred Securities ex-Financials Index which contains convertible securities, perpetual subordinated debts and depository preferred securities. From an industry perspective, REITs, electric, auto makers, telecommunications, and insurance companies occupy the top five spots. With the inclusion of insurance firms and REITs, PFXF has clearly excluded only banks and broad financial service providers.

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