After a buoyant start to the week, stocks ended on a low note today, as the Dow Jones Industrial Average (^DJI 1.73%) and the broader S&P 500 (^GSPC 1.67%) both fell by 0.9%. All 10 S&P 500 sectors retreated on Friday, lending weight to the notion that investors were heavily focused on the loss of momentum in the "fiscal cliff" negotiations over the last couple of days. With 10 days to run before the Jan. 1st deadline, investors are having to come to terms with the increasing likelihood that lawmakers will not reach an agreement by year-end.
The macro view
Despite the focus on the fiscal cliff, I think it's possible that the U.S. economy will surprise positively next year. To be sure, not all headwinds have been eliminated: Household balance sheets still require repair, and a dysfunctional polity will continue to plague the investment landscape for corporates. Nonetheless, there are positive factors that will act as a counterweight: The wild cards of cheaper energy from shale gas extraction and a recovery in housing may not be fully discounted in current forecasts. Yesterday, the Commerce Department revised third-quarter GDP growth to 3.1%, up from 2.7% (and just 1% two months ago.) With any luck, that is a good augury of things to come in the new year.
The deal that will remake U.S. markets
For someone who has been following the financial exchange industry for several years, IntercontinentalExchange's (ICE 2.11%) offer to acquire NYSE Euronext (NYX +0.00%) is a dramatic illustration of the seismic shifts that have transformed the industry over the past decade or so. Five years ago, it would have been impossible for me to imagine an upstart commodities exchange bidding for the owner of Big Board -- the cradle of U.S. shareholder capitalism. However, with the rise of electronic trading and the fragmentation of liquidity, the influence of traditional exchanges has waned, as they gave up ground to smaller but nimbler competitors. It's also a stark reminder that even seemingly impregnable franchises are vulnerable to technology and regulatory change -- and their decline can occur much more quickly than one expects.
