The fiscal cliff approaches. Everyone in the vehicle knows it is there. Everyone in the vehicle knows that plunging over the fiscal cliff would send shock waves through the U.S. economy and stock market. Everyone knows the odds of avoiding the plunge are extremely low. Everyone can even put a date on the plunge.

Is the only question when to jump out of the car?

The U.S. fiscal cliff sits on the horizon at the end of 2012.

A perfect storm of pending tax increases and spending cuts—all automatic unless politicians in Washington move to stop them—would cut U.S. GDP growth in half in 2013, according to the Congressional Budget Office.

If politicians stop the tax increases and the automatic budget cuts but do nothing to reduce the resulting deficit–which is frankly the most likely outcome if Washington does anything at all—GDP growth would pick up and unemployment would fall in 2013. But deficits would soar and the percentage of debt held by the public would climb to the highest level since the end of World War II. The U.S. could expect further downgrades from ratings companies such as Standard & Poor’s, a weaker dollar, and rising interest rates, which would all cut long-term growth.

A pretty set of alternatives, no? Read more

So was Friday a one-day drop in reaction to the disappointing U.S. jobs numbers or the start of something worse?

On Friday as I cruised through my list of stocks that I’d like to buy or where I’d add to existing positions if the price is right, I kept coming to this conclusion: After a bad week, a large number of the stocks I find attractive are still hanging significantly above their 200-day moving average. To me that argues that the U.S. market hasn’t yet broken the upward trend that dates back to the November 25 low on the Standard & Poor’s 500 stock index at 1159. The index crossed above its 50-day moving average at the end of December, signaling an extended rally. Recently, since the beginning of April really, the index has been bouncing around that level, making the chart a pretty good summary of how uncertain this market has become.

But it hadn’t decisively tumbled through that 50-day moving average to signal a correction in that rally—until, maybe, Friday, May 4. The decline to 1369 put the index once again below the 50-day moving average at 1387. We’ve been down below the 50-day line to this degree before in April and have bounced back each time. Next week will tell us if we’re finally looking at a break below that support level.

Of course, I’ll be watching that level but the support level that will get even more of my attention is the 200-day moving average at 1277. Read more

Initial claims for unemployment provide a worrying set up for tomorrow’s jobs numbers

If you dig—and not very deeply—the initial claims for unemployment numbers released this morning are worrying. Even though the number of workers filing new claims for unemployment dropped more than expected, the trend seems to point to a slowdown in hiring gains.

For the week ending April 28 initial claims for unemployment fell to 365,000. That is down from the 392,000 initial claims filed in the week that ended April 21. (The data for that week were revised upwards to 392,000 from an initially reported 388,000.) Economists surveyed by Briefing.com had expected the claims number to drop to 375,000.

So what’s the problem? Read more

It will be hard for global stock markets to keep eyes off France this week. That’s not only because the French election is indeed critically important for the euro and the course of the euro debt crisis—but also because French politics is just so entertaining.

However, there are a few things on the schedule this week worth watching outside of France. The biggest is the U.S. jobs number for April due on Friday, May 4.

What can you say about an election where politicians feel free to call leaders of opposing parties “half-demented” and a “bat” as Jean-Luc Melenchon said of Marine Le Pen? Melenchon, leader of the far-left party that finished fourth in the first round of voting, is supporting Socialist front-runner Francois Hollande. Le Pen, whose far-right party finished third, has not urged her supporters to vote for incumbent Nicolas Sarkozy but a key to the election is how many of those voters swing into Sarkozy’s column in the second and final round head-to-head vote between Hollande and Sarkozy on Sunday, May 6. (Le Pen has called the choice one between the plague and cholera.)

What financial markets will be watching to see is how far the euro bashing in each camp will go. Hollande has called for a renegotiation of the EuroZone’s fiscal responsibility pact. Sarkozy, before the election a key ally of Germany’s Angela Merkel and her fiscal austerity approach to the euro debt crisis, has tacked even further to the right in an effort to win over Le Pen’s supporters with calls for immigration controls that would require scrapping the Schengen agreement that created a 26-country area without internal border controls.

The contest has created a conundrum for Germany’s Merkel. While she would still clearly prefer a Sarkozy victory, as the odds that Hollande will win have climbed, her rhetoric has softened to create a space where a post-Sarkozy France and Germany could still find room to work together. For example, this week while maintaining her insistence that there can be no re-negotiation of the fiscal responsibility pact, she did say that European leaders will discuss a growth pact—a key Hollande campaign plank—at their June summit meeting.

Meanwhile, back in the United States, financial markets will be anxiously awaiting the U.S. jobs and unemployment numbers due on Friday to see if signs of weaker U.S. economic growth in the last week get confirmation. U.S. GDP growth for the first quarter came in at just 2.2% in data released on Friday. That was below the 2.5% consensus among economists and below the 3.0% growth rate in the fourth quarter of 2011. Add that to recent higher-than-expected initial claims for unemployment and today’s bigger than expected drop in the Chicago Purchasing Managers Manufacturing Index and it’s hard to avoid the conclusion that U.S. economic growth is slipping.

Economists surveyed by Briefing.com are looking for the U.S. economy to have added 162,000 jobs in April. Although that would be an improvement from the disappointing weak 120,000 jobs added in March, it would remain below the 200,000-plus jobs created in December, January, and February.

Was the March drop just a one-time thing or a sign that job creation has significantly slowed? If you’re worried about the growth rate in the U.S. economy reported last week, it’s hard to see how a weak jobs number would make you feel better. If relatively few new jobs were created in April that’s like to keep aggregate wage growth near zero again in April. Aggregate wages grew by 0.7% in February creating optimism for higher consumer incomes and therefore faster economic growth.

Half a loaf from Wells Fargo (WFC) Friday morning. The bank reported first quarter earnings of 75 cents a share. That was 3 cents a share above Wall Street estimates and a 12% increase from the 67 cents a share that the company earned in the first quarter of 2011. (Earnings were bolstered by $400 million release from reserves against bad loans in the quarter.) Revenue climbed—a novelty in the banking industry lately—by 5% from the first quarter of 2011 to $21.64. Wall Street analysts were expecting $20.5 billion in revenue.

But the strength of the story this quarter really depends on what part of Wells Fargo you looked at.

The mortgage business went great guns in the first quarter with the bank originating  $129 billion in mortgages. That was an increase of 7.5% from the $120 billion originated in the fourth quarter and a 54% increase from the $84 billion originated in the first quarter of 2011. This is the kind of performance from the bank’s mortgage unit that investors who have bid up the shares 24% for 2012 through the April 12 close were expecting. Wells Fargo’s mortgage business should be taking advantage of a retreat in the mortgage market from competitors such as Bank of America (BAC)—and it is.

The bank’s lending business wasn’t anywhere near that strong a story. Read more