The last two weeks of December are usually very quiet on Wall Street, but this year investors will spend the holidays ‘on pins’ due to the risk of the ‘fiscal cliff’.
The Dow Jones index weakened by 0.2 percent last week, to 13,135 points, while the S&P 500 slipped 0.3 percent, to 1,413 points, and the Nasdaq index fell 0.2 percent, to 2,971 points.
Investors typically spend the end of the year ‘beautifying their portfolios’, calmly buying stocks that have been the biggest winners of the year and selling those that have underperformed.
However, this year uncertainty will prevail in the market as negotiations between Republicans and Democrats over reducing the budget deficit seem likely to last until the last moments of this year.
As a result, the ‘fiscal cliff’ looms, with automatic cuts to budget expenditures and tax increases at the beginning of next year. These budget changes, worth about $600 billion, could reduce consumption and thereby push the U.S. economy into recession.
-Any resolution to the ‘fiscal cliff’ situation could significantly impact the market. For this reason, many companies are telling their brokers and analysts that they can take the Christmas holidays, but they must stay in touch if something happens. This year is significantly different from previous years when books were quietly closed at the end of the year,- says J. J. Kinahan, a strategist at TD Ameritrade.
Uncertain trading is also expected because the implementation of the ‘fiscal cliff’ would automatically increase taxes on capital gains and dividends, which would negatively affect the market.
Additionally, next Friday marks the expiration of four different types of options contracts, which usually causes significant fluctuations in stock prices.
