Investors’ negative reaction to U.S. election results continued last week, driving stock markets broadly lower for four days. By week’s end, our Quad-City Times Key 15 had pushed 17.79 lower to close at 1,072.64.
Most investors understand the simple economic connections and are aware that resolving the “fiscal cliff” may result in sizable tax increases, notably on dividend income and on gains from the sale of stocks or mutual funds, called capital gains. Depending on decisions made in Congress in the coming weeks, after-tax investment in such vehicles could become significantly less profitable. So, since the election, many investors have been telling their advisers that they may want to sell before the potentially higher taxes, which has led to pressure on stocks.
The bigger government/smaller paychecks concern was further evident in Wednesday’s market selloff as the president spoke of plans to ask for an additional $1.6 trillion in new and higher taxes over the next 10 years. Fewer dollars in paychecks buys fewer goods and services, in turn hurting profits and employment.
And Wednesday’s investors were still reeling from Tuesday’s announcement by the U.S. government of a $120 billion budget deficit incurred in October, the first month of the government’s new fiscal year. Bigger than expected, the single month annualizes at a $1.44 trillion shortfall from spending beyond revenues.
Economic news offered insights that now seem to take a back seat to tax concerns and superstorm Sandy distortions. For example, the U.S. Labor Department reported a huge jump in new claims for unemployment benefits, up 78,000 from the prior week to 439,000 claims, but added that the surge was occasioned by storm impacts on employers.
Similarly, the Commerce Department reported that October retail sales were 3.8 percent above one year ago. The storm hit the northeast Monday, Oct. 29. So, some discretionary buying suffered even as some essential preparation purchases boomed. In the prior month, sales were 5.5 percent over last September. So, reaction to the October number was little more than head-nodding by investors.
Among Quad-City firms, Archer Daniels Midland, with big Clinton grain processing operations, announced an important new agreement with Solazyme, the San Francisco-based renewable oil and bioproducts company. The companies signed collaboration, manufacturing and market development agreements in which they will produce Solazyme’s tailored algal oils in ADM’s advanced fermentation plant in Clinton. Those oils will be sold primarily to the industrial and nutritional markets in North America. The companies went on to say that they will initially target production of 20,000 metric tons in subsequent years. Solazyme’s comments called the Clinton operation a “world-class facility and operating team.” Unfortunately, the new business did nothing to stop the selling in ADM shares, off .42 to 24.97 for the week, and setting a new 52-week low at 24.38.
Heinz, with Muscatine soups and sauces production, announced receipt of a remarkable honor. Heinz ranked number one in overall customer satisfaction among food manufacturers in the 2012 American Customer Satisfaction Index. That’s number one for the 13th consecutive year. Heinz’s score of 89 measured performance in categories including quality, value, consumer loyalty and consumer expectations. Heinz shares were up .60 at 58.07 last week.
And Lee Enterprises, parent of this newspaper and 46 other dailies, posted fiscal fourth quarter results. After stripping out one-time adjustments, earnings fell from a 20 cents per-share profit last year to a 1 cent per-share loss, primarily due to higher interest costs this year. Operating revenue climbed 2.6 percent to $180.3 million though the latest quarter, which was 14 weeks compared with 13 last year. CEO Mary Junck looked ahead, “Lee continues very much on course as we drive strong digital growth, control costs, transform our business and rapidly pay down debt. We enter fiscal 2013 with energy, optimism and confidence in our strategies.” Lee shares were .45 lower for the week, closing at 1.20.
Get ready: Monday’s existing home sales figures will tell you if the gains are continuing. Wednesday’s leading indicators will be questioned for Sandy adjustments. Thanksgiving Day gives us a chance, despite the turmoil, to be thankful for all of our blessings.
(1) NYSE week of Nov. 12-16, 2012.
Jim Victor is senior vice president-wealth management and financial adviser for Morgan Stanley Smith Barney LLC, Davenport. Member SIPC. The information contained herein has been obtained by the writer from sources believed to be reliable, but he does not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. a) The firm is a market maker in the publicly traded equity securities of this company. b) Within the past 3 years, Morgan Stanley Smith Barney LLC or its affiliates have acted as manager or co-manager of a public offering of securities of this company.