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Hurricane Sandy and the Upcoming Election

hurricane-sandy

An unexpected late-October hurricane packed a big punch as it slammed into New Jersey and impacted a wide area in the mid-Atlantic region and the Northeast.

While we anticipated a major disruption here in the Northern Virginia area, we were largely spared its wrath.

Our thoughts go out to everyone affected by this storm. major disruption here in the Northern Virginia area, we were largely spared its wrath.

Raised in New Jersey, I know that several people from my childhood have been severely impacted.  I especially want to recognize the Frey Family who lost Tom in the storm.  Tom was a childhood friend of mine and as I understand it, was assisting neighbors with cutting down a tree when he sustained a head injury that took his life.  I will always remember jumping trash cans on our bikes and exploring the woods in a way no parent would ever let their children do in this day and age.

Given a number of issues, including the safety of employees, the New York Stock Exchange (NYSE) and related markets were closed on Monday and Tuesday, which makes this the first two-day, weather-related closure since the Blizzard of 1888 – hat-tip to CNBC for that nugget.

Here are the returns for the shortened week.

Market Returns for the Week Chart 11 5 12 resized 600

Damage

Markets re-opened on Wednesday and were greeted by an absence of drama, which came as big sigh of relief to the Exchange and investors alike.

Estimates of storm damage are in the $30-50 billion range.  Early reports suggest that refinery damage in the Northeast has been minimal and the December contract for wholesale gasoline futures traded on the CME have been relatively stable, which bodes well for consumers not directly impacted by the storm.  However, the disruptions to those who felt the full brunt of the hurricane will continue long after the headlines recede and news reports fade.

Encouraging News on the Employment Front

The Bureau of Labor Statistics reported that nonfarm payrolls grew by 171,000 in October, beating the Bloomberg forecast of 125,000. Private-sector payrolls came in slightly better, rising 184,000. Furthermore, we saw upward revisions of 84,000 to the prior two months.

However, we are not yet calling “all clear” – not by a long shot. The unemployment rate, which is derived from a separate survey, ticked up to 7.9% from 7.8%, as new entrants into the labor force exceeded those who landed jobs. Nonfarm payrolls, which have recently trended higher, have not exceeded 200,000 (modest growth at best by recovery standards) since February.

Economic growth must be far more robust than what we have been seeing in order to create the necessary jobs needed make a substantial dent in the unemployment rate.

The Election and the Fiscal Cliff

The presidential election is still too close to call according to Real Clear Politics…which ironically is not real clear about anything! I suspect it will be Wednesday morning before I know the outcome; there is NO WAY I’m staying up for this media slugfest.

How the races eventually play out – both the Presidential race and for control of the Senate – will have a big impact on economic and tax policies next year, including how the upcoming fiscal cliff may be resolved.

There are four possible paths:

1 – Kick the can down the road by delaying any tax and spending changes until 2013.

2 – Modest compromises are made in a lame-duck session of Congress.

3 – A so-called Grand Bargain is agreed to in a lame duck session that raises taxes and reforms entitlement spending.

4 – We fall over the fiscal cliff – this invokes memories of Saturday morning Road Runner cartoons.

Number 4 is the least likely scenario, in my view, given the economic consequences.

Road Runner Off Cliff resized 600

Please call or email with questions.

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Securities and Financial Planning offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index. The Russell 2000 is an unmanaged index generally comprised of companies with lower price-to-book ratios and lower forecasted growth values.  The 2, 10 and 30 year Treasury is simply the yield at the close of the day.

(1)      West Texas Intermediate crude spot price is as of end of week.

(2)      London Bullion Market Association; gold fixing pricing at 3 p.m. London time.

 

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David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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