The fiscal cliff appears to be an impending calamity, and financial markets seem to be responding now, even if they largely ignored it during the previous twelve months. If a deal is not reached, within the next few days the United States will see large tax increases applied to all income groups, coupled with large decreases in government spending. Investors and market observers worry what impact this will have on consumption and investment in the coming year, and appear to be taking some profits now, ahead of the unknown.
Despite news of a meeting between President Obama and the top leaders of the House and Senate to take place, markets seem wary to believe anything will be worked out in the short time window being faced. The House is said to have plans to convene Sunday evening in case a vote is needed, but markets are jittery in expectation of a failure to reach agreement.
U.S. stocks opened lower Friday, as lawmakers fumble to find a solution to the fast-approaching fiscal cliff. The uncertainty has taken a toll on markets. Stocks have sold off for four straight sessions as hopes for a substantial budget agreement have diminished, and all three indexes are on track to end December in the red.
Investors are hoping that leaders will at least be able to reach some sort of breakthrough that will postpone at least some of the automatic tax hikes and spending cuts due to take effect on Jan. 1. Mark Helweg, founder of financial tech company MicroQuant commented “A lot of people are thinking about capital gains consequences and holding positions beyond this year.”
Shares in financial service firms are leading the market lower, with drops in Citigroup (NYSE: C), Wells Fargo (NYSE: WFC), Bank of America (NYSE: BAC), and JPMorgan Chase (NYSE: JPM). If the fiscal cliff is not averted, investors feel the US is headed towards an inevitable recession. Another group of investors worry that even if the fiscal cliff is avoided, the fundamental flaws in the US economy haven’t been fixed and this same issue will merely resurface in another year’s time. The US government has spent at unconscionable levels for the better part of six decades, Republican and Democrat administrations alike. There is no one single person to blame for today’s calamity, but rather a string of foolish decisions that pushed the costs into the future. That future, is, unfortunately, now.
