On Thursday, the major U.S. stock indices fell for the second
day in a row with the S&P 500 moving below its 200-day moving
average. However, even pessimistic analysts do not believe that
the market fall will resemble a falling knife from here on, as it
encounters pretty strong support at these levels.
The primary concern for investors remains the 'fiscal cliff'.
Under the worst case scenario of gridlock in Washington, D.C.,
some $600 billion in tax hikes and expenditure cuts will go into
effect in early 2013. Under these circumstances a feeble U.S.
economy would go once again into recession. Investors are
concerned about possible increases in dividend and capital gains
taxes.
A more plausible solution would be that Washington may reach a
stop-gap solution. In this context, the International Monetary
Fund (IMF) urged the U.S. government to quickly reach a composite
solution rather than adopt a temporary fix. However, the IMF
believes that a cliff remains a 'medium-term' possibility, which
would cause significant harm to the economy.
Standard & Poor's Rating Services, a part of
The McGraw-Hill Companies
, Inc. (
MHP
), believes that despite a 15% probability of a fiscal cliff, the
most likely situation is a timely compromise by the
Administration, which would help avoid most of the negative
consequences of a cliff.
Other analysts pointed to myriad factors which may be raising
investor worry. The mountain of government debt in the U.S. is a
cause of concern with the IMF calling for a credible debt
reduction plan. The debt ceiling needs to be raised in order to
avoid a temporary shut down of the federal government. Then, ECB
President Mario Draghi stated that the German economy is being
pulled down by a moribund Europe. The German economy has shown
signs of weakening of late with a falling trend in exports. Also,
in Greece, a weak coalition passed an austerity plan.
We believe that pharmaceutical and consumer staple companies,
such as
Johnson & Johnson
(
JNJ
),
Bristol-Myers Squibb Company
(
BMY
) and
Procter & Gamble Co.
(
PG
) may be able to better withstand different economic conditions.
Investors may consider these to be relative safe
havens.
BRISTOL-MYERS (BMY): Free Stock Analysis
Report
JOHNSON & JOHNS (JNJ): Free Stock Analysis
Report
MCGRAW-HILL COS (MHP): Free Stock Analysis
Report
PROCTER & GAMBL (PG): Free Stock Analysis
Report
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