Did the Fiscal Cliff Really Charge the Market?
As negotiations over the so-called fiscal cliff have saturated news sites for most of the week, it appeared natural for market headlines to suggest that President Barack Obama's remarks Wednesday afternoon fueled the uptick in major U.S. equity markets.
Obama appeared minutes after 12 p.m. EST when the Dow Jones Industrial Average was ticking slightly lower, but reached session highs just minutes after he concluded his remarks. And the market held those gains until the close at 4 p.m.
But with very few details emerging from closed-door talks, and no signal that legislators and the president are even close to solving the fiscal cliff -- when tax relief measures and deep spending cuts will automatically go into effect at the beginning of 2013 -- investors may want to reconsider how much these early comments are truly having on the markets."We humans suffer from narrative fallacies, I think is the term, is that we think things have to happen for a reason and sometimes it's just a case of there's more buyers than sellers," said Marty Leclerc, chief investment officer at Barrack Yard Advisors. Leclerc said that he believes elected officials will eventually do something to solve the nation's fiscal troubles, and he said complacency among investors remains very high. In other words, eurozone woes, a China slowdown, and the U.S. fiscal cliff all are events very well known to the financial markets. The president expressed confidence that both parties would agree on a framework in the coming weeks. "In fact, my hope is to get this done before Christmas," Obama said Wednesday. Though this would bring some optimism to some investors, it's difficult to infer more specifics from the president's remarks. A framework doesn't necessarily imply how much in spending cuts or what tax increases would be made. Nor does it specify if Obama's hope to get things done before Christmas means a decisive fiscal year 2013 budget or if it would be a temporary band-aid to kick the deal into the first quarter of next year.
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