“We’re watching the news headlines which will all be about the fiscal cliff for the next six weeks,” Thomas Nyheim, a Wilmington, Delaware-based fund manager for Christiana Trust, which oversees about $15 billion, said in a phone interview.
Should policy-makers fail to reach an agreement on the fiscal cliff and the automatic spending cuts and tax increases go into effect at the beginning of 2013, the U.S. would enter a recession and could experience its second credit downgrade, according to Oppenheimer & Co. S&P cut its AAA rating in August 2011 after an impasse on the debt ceiling. The Dow alternated between losses and gains of 400 points on four days during that month, the longest streak on record.
“Even though the U.S. has already weathered a downgrade earlier in the process of the current economic recovery, a second downgrade might not be as easily digested or received by the markets and foreign investors as the first,” John Stoltzfus, chief market strategist at Oppenheimer, wrote in a note today.
David Bianco, Deutsche Bank AG’s chief U.S. equity strategist, said the next 5 percent move in the S&P 500 is likely up and advised clients to use the dip to buy growth stocks. He cut his 2012 estimate for the benchmark index to 1,450 from 1,475, while reiterating a 12-month forecast of 1,500.
“We still believe that the fiscal cliff will be averted with compromise legislation, but President Obama’s re-election and a larger Democrat majority in Senate raise the likely amount of tax hikes vs. spending cuts in the new legislation,” Bianco wrote in a Nov. 9 report.