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Investing Specialists

Market to Congress: Time to Work

With large declines this week, markets were signaling that Congress must start solving the fiscal cliff--now.

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This week the economic data flow was pretty thin, with markets focusing largely on the U.S. elections, and then the fiscal cliff. Along the way, markets took a detour on Thursday for news of worsening economic news in Europe followed by reports on Friday that seemed to indicate China's economy had hit bottom and is on the mend.

On the U.S. economic front, a surprisingly good trade report forced economists to drastically raise their third-quarter GDP estimates from 2.0% to 2.6%. However, until all of the inventory data is in, I wouldn't be counting all my chickens before they hatched. The last of the inventory data could put a damper on some of the more optimistic GDP projections. I also have a suspicion that combined, the third- and fourth-quarter GDP estimates are likely to average little better than 2%. Any outperformance in the third quarter is likely to be followed by underperformance in the fourth quarter. Retail sales reports and employment data both suggest GDP growth closer to 2.0% than 2.6% for the second half of 2012.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.