We're two weeks away from the pending fiscal cliff, and thus far the market has mostly ignored the potential negative impact on the economy. Last week, even after the Federal Reserve said the economy is already feeling the effects, the Dow Jones Industrial Average (^DJI -0.11%) fell just 20 points last week and the S&P 500 (^GSPC 0.02%) dropped only 5 points for the week. But the closer we get to the first of the year, the more stocks will hang on every word coming from Washington and the more focus will be put on data that may begin declining because of the uncertainty.
This week, housing is in focus, and we'll see whether buyers are getting cautious or are still in a buying mood. On Tuesday, the homebuilders index will be released, followed by housing starts for November on Wednesday, and existing home sales on Thursday.
The data will drive the fortunes of bank and housing stocks this week. Home Depot (HD -1.77%) and Lowe;s (LOW -1.40%) are both benefiting from an improved housing market, and the data this week will be key to seeing whether the market continues to improve. We've begun to see consumers lose a little confidence in the economy recently, so they may not be in the mood to make investments in housing, either.
Bank of America (BAC -0.13%) and JPMorgan Chase (JPM 0.49%) will also be worth watching because both housing and the fiscal cliff discussions will affect these two giant banks. The housing market, in particular, is improving, but with high unemployment and a potential recession if we go over the fiscal cliff, the housing market isn't on terribly solid footing. Positive data and moves toward a resolution in Washington will push these stocks higher, but the opposite seems just as likely at this point.
