The Stock Market And The Fiscal Cliff

August 23, 2012

We continue to view pullbacks as opportunities to add to equity positions and believe the economy will be in a modest growth/modest inflation environment at least through 2013.

-Scott Wren, senior equity strategist, Wells Fargo


Let me start off by saying that I do not believe the United States will roll over the "fiscal cliff" come December 31, 2012 when the Bush-era tax cuts expire and automatic government spending reductions are scheduled to kick in. Politicians, at least right now, do not have the courage it takes to make the tough decisions and we are not at a crisis point. Yet.

But that does not mean for certain that the stock market will act as though the problem will be kicked down the road. Right now the markets are focused on the European Central Bank (ECB) and the high probability that at some point in the future they will step into the market and buy the sovereign debt of Spain and Italy. Based on the better than 10% rally since the beginning of June, investors apparently feel quite certain that the ECB will step in soon.

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