Markets reacted with disappointment over election results and responded to grave concerns over an increased risk of the US falling off the fiscal cliff this week. In spite of the sharp sell-off on Wednesday and Thursday, the S&P 500
(INDEXSP:.INX) lost a little more than 2% (open Monday at 1414 / close Friday at 1383) – well within normal market behavior patterns.
Next weeks’ market-moving events:
Monday: It’s Veterans' Day; banks and bond markets are closed, while stock exchanges are open. DR Horton (NYSE:DHI) reports earnings.
Tuesday: No meaningful economic data will be released. Expect international news to dominate and drive market direction.
Wednesday: Producer Price Index and Retail Sales reports will be released in the morning, but market participants will likely wait until the 2:10 p.m. release of the FOMC minutes to determine market direction.
Thursday: Consumer Price Index, Jobless Claims, and The Philly Fed Index are all on tap. Economic data has been improving in the last few months; investors could start paying attention and let the recent market rally resume.
Friday: Industrial Production figures will be released. Based on current trend, expect this report to surprise on the upside and give markets a boost.
Given markets' anxiety of the US facing the fiscal cliff, I believe that investors are likely to overreact to any further negative news from Europe or elsewhere in the world. Improving US and global economic data is currently being ignored by investors, meaning that an eventual rebound could be more pronounced. I continue to believe that a sector rotation into defensive and lower beta sectors is warranted, but warn against the temptation to engage in market timing activities
Follow Oliver Pursche on Twitter: @opursche.
No positions in stocks mentioned.