'Fiscal Cliff': Armageddon Or Just 'eh'?
For example, if higher taxes kicked in, workers might get less money in their first few paychecks of the year, and then the government might reach a compromise and refund the money.
"The fiscal cliff is not really a cliff â¿¿ it's more like a $600 billion hill that will accrue over the year," Carmack says, referring to the amount of money that could be taken out of the economy from higher taxes and lower spending.
Bob Phillips, managing partner at Spectrum Management Group in Indianapolis, compared the "fiscal cliff" to the Y2K scare.
"The thought was that every computer in the whole world is going to malfunction on Jan. 1, 2000, and it's going to be a disaster," Phillips says. "I think this is a similar thing. It's been built up to this perception that everything will fall apart, and it's not."Jeffrey Saut, chief investment strategist at Raymond James, says he believes government spending cuts will be "bullish" for stocks because the federal budget will be closer to balance. He says: "So, if we do take the 'cliff' dive, and it's not for too long a period of time, the market takes a hit but the economy resets itself. And we continue to grow going forward." Q: If there is a deal on time, will the market shoot higher? Not necessarily. Stocks have been rising more or less steadily since mid-November, a sign investors already believed lawmakers would compromise. The Standard & Poor's 500 index has climbed more than 5 percent since Nov. 15. That signals that a successful compromise is factored into stock prices already. Much more important to the market's performance in 2013 is the economy. Some investors, like Phillips, are pessimistic, pointing to an unemployment rate that is still much too high and personal income growth outpaced by inflation.
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