Market News Update - Elections Over as Fiscal Cliff Looms

Thankfully the election is over. I don’t know if I could have taken another day of the constant barrage of negativity and attacks being waged everywhere from TV, radio to print. In the end, after the most expensive election in history, we basically have a government that has not changed at all. President Obama has another 4 years, the House of Representatives remains controlled by Republicans, and the Senate is still controlled by Democrats.  Bottom line, government is unchanged and it cost 6 billion dollars. (Yes, that is “B” for “billion”)

As discussed in last week’s newsletter, there was very little domestic news to trade on this week as everyone has been waiting on the election results. The election is done and the markets went crazy on Wednesday with investors pulling their money out of the stock market, causing the DOW to experience its largest one day decline of the year of 313 points. On Thursday the markets continued to tumble with another drop of 121 points.

Individuals in tune with the markets believed that the drop was due to the fact that President Obama had been re-elected for another 4 years. As much as investors and Wall Street were not thrilled with the election results, the sell-off in the markets was due to the fact that the landscape of government has not changed. The fear that is taking over the markets is that if both sides of government don’t start working together quickly, the economy will very likely continue in its recession at the start of 2013.

You may or may not know what it is, but the headlines all over the business wires are about this thing called the “Fiscal Cliff”. In 2011 the Budget Control Act of 2011 was passed. This law was created to permit the government to extend the debt ceiling which allowed the government to continue to borrow money to keep operating. The law was passed and, simply put, stated that if the government is allowed to continue to borrow money, then Congress must agree to adopting certain spending controls and policies by the end of 2012.  In the event that Congress does not put these controls in place, then spending cuts and tax increases will be triggered on January 2^nd 2013.

Well... here we are almost at the end of 2012 and Congress is no closer to coming to an agreement on taxes and spending which means we are getting dangerously close to the Fiscal Cliff becoming reality.  Investors are scared and are starting to pull their money out of the stock market now.  If Congress does not get their act together then the spending cuts will be triggered and you can bet your last dollar that we will see the stock market tank like it did back in 2007.

Personally I believe that Congress WILL come to an agreement; however, it may not happen until after the cuts begin to take place and pressure is put on them to take immediate action.

Next week’s economic reports are:

• Monday November 12^th – Veterans Day (Stock Market Open, Banks and Bond Market Closed
• Wednesday November 14^th - MBA Applications, Producer Price Index, Retail Sales, FOMC
• Thursday November 15^th - First Time Jobless Claims, Consumer Price Index
• Friday November 16^th – Industrial Production          

I appreciate your business and look forward to talking to you soon! Have a great day!!!
 

Sincerely,

Cindy Tomlinson
Loan Officer

USLending Company

DRE Lic # 01520422
NMLS # 214851   

 

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