At the Height of Uncertainty - Don't Look Down!

So, here we are at the end of October.  Winding up the month and the markets are lethargic.  That’s not what we are used to seeing this time of your.  For reference, companies are normally ramping up production for a big finish to end the year, retailers are taking inventory and stocking up for what they hope to be a big shopping season and most are planning their goals and needs for the upcoming year.  But that is not what is happening now.  From some of the recent earnings calls we are hearing hesitation, caution and trepidation about the future.  Perhaps the realities of the ‘fiscal cliff’ and a changing of the guard (or not) are having an affect.

How will it all shakeout?  Is there a disaster on the horizon?  Don’t look down!

In about 10 days from now we may have a new President elected, or perhaps the same one coming back for four more years.  The United States will take center stage as the leader of the free world, the voters will speak and the uncertainty will be removed.  Apparently we know what to expect from either candidate.  Currently it’s nearly a tossup, polls are pointing in both directions.  The last minute jostling, lip service and propaganda will get loud and fierce in these final days.  But how does the market feel about the election?  Sanguine, to say the least.

The VIX, or volatility index reflects complacency, or perhaps it reflects less fear of the consequences.  The latter is what is most interesting to me.  If there was fear of either man wrecking the economy more then the market would sniff it out quickly – and many investors would head to the sidelines or buy protection.  How about the ‘fiscal cliff’?  So much at stake here that government risks their political lives if a solution is not at hand.  I find it shameful, embarrassing and completely unacceptable if an agreement is not made before the deadline.  A government by the people, for the people?  I have to wonder.

The stock market seems rather confused here.  With an assortment of earnings surprises (good and bad) the focus is not only on the past but what is being forecast over the next few months.  After correcting about 5% from the recent highs the market finds itself in a precarious position.  Technicals are mixed but leaning bearish yet markets are severely oversold and deserving of a rally attempt.  Tuesday’s miserable action was a warning sign – 1% drop on the open and no recovery whatsoever, the ‘buy the dip’ crowd was notably absent.

The rising market over the summer seemed to portray decent growth was on the way during Q4 and the following Q1, perhaps 3% or a bit more.  The economic data is also turning up and may continue down that path, Europe is finally getting a handle on things and China is trying to stimulate a slowing economy.