Monday, November 19, 2012

Fiscal Cliff and European Sovereign Debt Concerns Recede, Earnings Worries Linger

Concerns about the U.S. fiscal cliff and the European sovereign debt crisis both declined over the course of the past week, as stocks made a concerted effort to establish a bottom, following an 8.9% decline in the S&P 500 index, according to the VIX and More weekly fear poll.

Even though the earnings reporting season is almost over, investors continued to express concern about weak earnings and guidance going forward, with earnings worries finishing a close third in the poll.

The biggest changes in investor sentiment have come in the form of growing discontent with institutions such as central banks and governments and concerns that their intervention in economic matters will have more of a negative than positive effect. Fears about excessive intervention on the part of central banks as well as more broadly with the role of governments and politicians were largely absent just two weeks ago. Taken together, this lack of trust with respect to the two influential policy-making institutions is now as big as concern as that of the fiscal cliff or the euro zone woes, as shown in the graphic below.

The persistent Americentric bias is still apparent. This week, for example, 8.5% more of the U.S. respondents cited the fiscal cliff as the top concern over the European sovereign debt crisis. For non-U.S. respondents, however, the European sovereign debt crisis outpolled the fiscal cliff by a margin of 3.2%.

Also of note from a geographical perspective, U.S. respondents were 1.8% more likely than non-U.S. respondents to tab excessive central bank intervention as their top fear and 5.9% more likely to point to government and politicians as their biggest concern. In addition to placing higher emphasis on the European sovereign debt crisis, non-U.S. respondents also expressed much more concern about China and deflation.

Once again, thanks to all who participated in this weekly poll.

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