The stock market has been climbing but some investors worry it will come tumbling down again. Their fear: Washington’s much-dreaded “fiscal cliff.”
In January, $1.2 trillion in automatic spending cuts are set to begin, while a series of tax cuts enacted under President Bush are scheduled to expire. They both could cause deep damage to the economy and markets.
“The quickly approaching fiscal cliff is big, scary, [and] yet avoidable,” argues Bill Stone, chief investment strategist at PNC Wealth Management.
Investors are nervous because the U.S. economy already is in a fragile state, while global growth is even more precarious, especially in Europe. If spending cuts take place and taxes rise, some worry the U.S. will be thrown into recession, pulling down growth around the world.
A messy fight between Democrats, many of whom are reluctant to reduce spending, and Republicans, who are loath to raise taxes, also could serve to undermine confidence in U.S. markets—even if an eventual compromise is reached.
Such an ugly brawl also could raise new questions among investors about the ability and appetite of politicians to chip away at the government’s nearly $16 trillion of debt.