The Daily Difference: Market Update December 11, 2013
There has only been one certainty the last few years in financial markets: markets like certainty. The House and Senate finally reached a deal today (before the 11th hour!) that will raise spending over the next two years by easing automatic spending cuts by about $60 billion over two years. In addition, the deal is expected to reduce the deficit by $20 billion to $23 billion. So, why is the market down? Good news is bad news! Jeffrey Lacker (Richmond Fed President) said on Monday that budget uncertainty is weighing on confidence and investment. Unfortunately, increased confidence is seen as supporting a possible Fed decision to start tapering sooner rather than later, providing markets with some pause. We believe the Fed will be patient and wait for definitive economic reports to support any action; however, with tapering imminent, evidence suggesting the timing could be sooner is likely to weigh on markets. The big market movers are yet to come this week: pay close attention to tomorrow morning’s retail sales report! Luxury goods makers have taken a beating this week as many analysts speculate shoppers are gravitating towards lower margin goods (think flash sales). The retail sales report may set the tone for the rest of the year as we get a better glimpse at the breadth of consumer spending this holiday season.