Market Drivers: Jobs, SSS, Fiscal Cliff

Gummy candy

Gummy candy (Photo credit: Wikipedia)

Wednesday’s 308 point rise in the Dow sparked by averting the full force of the fiscal cliff can only be described as a “relief rally.” Relief that our politicians were smart enough to take some action (though not nearly enough) to keep the US economy from heading back into recession. Former Senator Judd Gregg aptly called the rally a “sugar high” on CNBC. Of course, the first trading day of the year also brings with it new money and in this case, we also saw a lot of short covering.

So, was the rally warranted? Will the markets be able to sustain all the good feeling? Below are the three things driving the markets this week:

Fiscal Cliff Averted (Sort Of):

Washington got a deal done, but it’s not over yet. For a run-down of the components included in the deal, check out my colleague, Ron Bohlert’s blog. It was mostly a band-aid for tax stuff which means we still have to address sequestration (the automatic spending cuts pending) and the debt ceiling.  Based on how these talks went, I expect the roller coaster ride is only just beginning.

Jobs Getting Better:

The ADP Employment Change report for December surprised everyone by showing an increase of 215k private sector jobs for the month, while expectations were for a more modest increase of 142k. This means that economists may have been wrong in their prediction that businesses were holding back on hiring leading into the fiscal cliff. Firms certainly were more cautious on capital spending, but hiring remained strong. Friday brings the official unemployment report. ADP has mixed results as a predictor of nonfarm payroll numbers, but let’s hope the survey is right this time.

Retail Sales Disappoint:

Despite major chain stores posting a 4.5% increase in year over year December sales, the data was largely disappointing. While many stores reported better than expected sales, (Costco being the most notable), it seems that deep discounts were the trend, meaning high same store sales numbers could have come at the expense of quarterly earnings. JC Penney, Target and Kohl’s all issued downside guidance today.  It doesn’t seem likely that they will be the only ones.

On a lighter note, the Wall Street Journal’s Deal Journal blog posted their list of the Top 5 Losers of 2012.  Spoiler alert – Jamie Dimon takes the top spot.  Stay tuned next week as Q4 earnings season kicks off. 

Read more about the issues, debates, trends and other forces helping to shape the markets