We have now closed the book on November, a volatile month that presented both opportunity and risk in healthy quantities. After the re-election of President Barack Obama, the market headlines began to focus heavily on the looming "fiscal cliff."
First, what is the fiscal cliff? It refers to $600 billion worth of tax cuts and spending programs that are set to expire at the end of 2012. The belief is that with higher taxes and less spending to stimulate our still-fragile economy, we will slump back into recession. Going over the fiscal cliff would not necessarily trigger financial Armageddon immediately, but it would weigh on what has been a slow economic recovery over the last several years.
Republicans and Democrats disagree fundamentally on how to address the situation. President Barack Obama and the Democrats want to bridge the gap by extending middle class tax cuts but letting taxes go up for Americans making $250,000 or more. Republicans want to renew all of the tax cuts and cut government spending programs. Both parties have dug in their heels for a long and contentious negotiation that is expected to go right down to the January 1st deadline.
Investors have been hearing all about the fiscal cliff, but many are probably asking, "how will this affect my portfolio?" In the two weeks following President Obama's re-election, the market showed extreme anxiety over the issue and sold off sharply. Even up through early this week, any pessimistic comments from Washington have been set with selling in the market.
The potent market reversal we saw on November 16th came after the first indications that Republicans and Democrats may be capable of compromise after all. Senate Majority Leader Harry Reid made positive comments about the initial negotiations, and investors bought stock in droves. In the past several days, we have seen the market absorb some pessimistic comments well, suggesting perhaps an underlying confidence that a deal will get done.
We still stand on very shaky ground, though. As traders, we are going to have to wrestle with the fiscal cliff headlines throughout the month of December.
Heading into such an important month, we want to give all of you the chance to gain access to our team of professional trading mentors - FOR FREE! That's right, because we believe there will be copious amounts of both risk and opportunity in December, we want to make sure you have the opportunity to get hands-on mentoring from professional traders who will be actively navigating the market with you.
We hope to see you in one of our mentoring rooms this month!