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CNNMoney: Stocks to Stay Volatile as ‘Fiscal Cliff’ Nears

By    |   Friday, 13 July 2012 08:29 AM

A new CNNMoney survey reveals that 80 percent of investment strategists and money managers believe that the stock market could be just as volatile or potentially worse than after the debt-ceiling increase last year, as legislators attempt to avoid falling off “the fiscal cliff.”

“In case investors are not sufficiently convinced that policymakers and politicians are up to the task of handling the fiscal cliff in a reasonably effective manner, financial markets are likely to again fall sharply, similar to the plunge around the debt-ceiling debacle in 2011,” John Praveen, managing director and chief investment strategist of Prudential International Investments Advisers LLC, told CNNMoney.

But some say the market could fall even more because of the additional impact of the eurozone crisis, the slowdown in China and the sluggish U.S. recovery.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

In addition, Peter Tuz, president of Chase Investment Counsel Corp., said the market could be particularly volatile ahead of the November election while investors try to determine which party will win the presidency and which parties will control Congress, thereby directing tax policies.

Approximately three-fourths of the strategists and money managers surveyed agreed that a victory for Mitt Romney would be the most favorable outcome for the market, as he advocates extending all of the Bush-era tax cuts. Also, many are hopeful that the Republicans will gain control of the House and the Senate.

Tuz noted that while the market will continue to worry about the fiscal cliff, some of the worry could be offset if Romney takes a lead in the polls.

“At this point, I think markets would appreciate a clear Republican mandate,” he noted. “That provides the best chance for continued low tax rates. If investors see the likelihood of an Obama victory, coupled with Democrats retaining control of the Senate, they will react by taking advantage of the low tax rates that still exist, so a sell-off in markets would be a distinct possibility.”

Along those same lines, Steve Forbes, Forbes magazine editor and former presidential candidate, told Newsmax earlier this year that an Obama victory — perhaps even the anticipation of an Obama win — will lead to a market selloff and another recession.

Asked if lawmakers in Washington will be able to deal with the fiscal cliff without causing turmoil in the markets, Forbes said, “After the November elections, if President-elect Romney makes it clear that he’ll sign temporary legislation on January 20 extending those tax rates for a few months so Congress can make deliberations on a whole new tax bill, I don’t think the markets are going to have much of a hiccup. I think they’ll make the Bush tax rates retroactive to January 1.

“So the key is who wins the election,” he added. “If Obama happens to win, I think you’ll see a market selloff. I think we’ll be on the way to another recession. And I think the markets, if they anticipate Obama will win — markets don’t wait for a bad thing to happen, they sell off before it happens.”

According to Cam Albright, director of asset allocation for Wilmington Trust Investment Advisors, some of the worry and volatility could also be moderated if Congress passes at least some temporary extensions of the tax cuts set to expire at the end of the year.

Doug Cote, chief market strategist at ING Investment Management, told CNNMoney, “The fiscal cliff, if implemented in its entirety, would be a disaster for the economy and far worse than the debt-ceiling debacle for markets.”

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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Friday, 13 July 2012 08:29 AM
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