By now, most of you have heard about the
To sum: it's the impending double whammy of planned government
spending cuts and rising taxes that is slated to take effect at
the end of this year as part of President Obama's Budget Control
Some analysts are predicting that such a scenario would put us
over a so-called "fiscal cliff" - and into another recession. One
analyst is forecasting that unemployment will eclipse 9% again
should the law take effect at midnight on December 31.
Whether you believe in such a doomsday scenario probably
depends on your political preference. Some may dismiss the fiscal
cliff as being 2013's version of Y2K. Others see it as the 2008
financial collapse all over again.
Either way, it should impact the stock market.
gains re-election in early November and the Democrats retain
control of Congress, that will certainly send a wave of panic
through the doomsayers, and perhaps spark a massive sell-off the
last two months of 2012.
pull off the upset (according to current polls) and many of his
fellow Republicans win their Congressional races, that would at
least put the fiscal cliff scenario on the back burner - if not
the scrap heap - and likely prompt a late-year rally.
Real or imagined, the fiscal cliff WILL have an impact on the
market one way or another. Should Obama win the election and the
worst-case scenario - declining GDP growth, rising unemployment,
widespread belt tightening - play out, then certain sectors of
the U.S. economy will really take it on the chin.
Three sectors in particular are sure to be negatively impacted
by the mere possibility of the fiscal cliff. Those are:
-The Big Banks.
Remember how bank stocks went in the tank in the summer of 2011
as Congress waited until the last minute to raise the debt
ceiling? Here's a chart of the
Financial Select Sector SPDR (NYSEArca: XLF)
ETF to refresh your memory:
Expect that scenario to repeat itself the longer this fiscal
cliff looms. The specter of less spending and a backtracking
economy always puts pressure on banks. To make matters worse, the
Federal Reserve will be performing its latest round of
on U.S. banks in late November and early December. If a fiscal
cliff is still looming by then, some major financial institutions
might not pass the test. That wouldn't bode well for the likes of
Bank of America (
), Citigroup (
), Morgan Stanley (
Goldman Sachs (
- stocks that fell roughly 35% on average during the debt-ceiling
Holiday shopping season always make November and December the
most profitable months on the calendar for U.S. retailers. But if
the fiscal cliff erodes consumer confidence the way some think it
will, this could be a light shopping season compared to the
typical holiday windfall. The belt tightening could actually be
good news for shares of cheaper retailers such as
Family Dollar (FDO).
However, it would likely hurt sales at mid- to higher-end
retailers such as
Amazon (AMZN), Macy's (M)
Michael Kors (KORS).
-The Auto Industry.
Auto sales are generally lumped in with all other retailers. But
the fiscal cliff's impact on the auto industry could be two-fold.
For one, U.S. consumers may feel less emboldened to buy a new
car, damaging sales at industry leaders such as
Ford (F), General Motors (GM)
Second, manufacturers that supply auto parts such as
Goodyear Tire & Rubber (GT)
may also see a steep decline in demand - and, by extension, their
Will the fiscal cliff send us plummeting into a second
recession? Will it push unemployment back to 2010 levels? Will it
force us all to load up on water, Twinkies and gold bars and find
a bunker to hide in for the next year?
No one knows for sure - and anyone who tells you he or she
does is lying.
What we do know is that the mere possibility of a fiscal cliff
will cause fear among investors and consumers alike as December
31 draws near. And that fear will impact some sectors more than