The S&P 500 (INDEXSP:.INX) above 1,400 with five consecutive days of gains which would mean that some profit booking might happen in the coming week as negotiations for increase in tax and spending cuts would begin in Washington.
The United States congressional leaders and Barack Obama will soon be discussing ways to decrease the deficit along with avoiding “fiscal cliff” of the automatic tax increment increase and spending cut which might result in an economy going into recession.
The VIX i.e.CBOE Volatility Index .a tool which is used to measure market anxiety has an inverse relationship with the S&P 500 (INDEXSP:.INX), Currently it is trading below its 200-day moving average but any hurdle in Washington would mean that it would go up again.
“If the fiscal cliff happens, a lot of major assets will be down on a short-term basis because of the fear factor and the chaos factor,” said Yu-Dee Chang, chief trader and sole principal of ACE Investments in Virginia.
“So whatever you are in, you’re going to lose some money unless you go long the VIX and short the market. The ‘upside risk’ there is some kind of grand bargain, and then the market goes crazy.”
People do believe that some agreement will fuel the rally, but conflicting political agenda of the Republicans and Democrats have created major roadblocks in the way.
Liberals suggest tax increment for the richest Americans. On the other hand, it protects the advances in healthcare. Conservatives plan for a deep cut in the plan for the poor and increasing the tax base to generate more revenue while keeping the same tax rate
Middle East and Europe
According to analysts the Middle East tension and the delays by the International Monetary Fund to finalise the dealings with Greece have added to the instability. The finance minister of Greece had announced earlier that the IMF has loosened its debt cutting target for the debt ridden country and only $13 billion remains unfilled and left to be paid.
Recovery could be confirmed by Housing Data
The Superstorm Sandy killed more than 100 people damaging billions of dollars in the U.S East Coast. The housing data confirmed that it would lead to higher unemployment rate also .
The S&P 500 (INDEXSP:.INX) second best week of the year ended with a gain of 3.6 % which shows an encouraging economic outlook.