‘Fiscal cliff’: Will Wall Street light a fire under Congress?
So far at least, many on Wall Street seem to think that no matter what happens over the next few days with the fiscal cliff, Congress will still come through early in the new year.
When it comes to the “fiscal cliff,” Wall Street has yet to hit the panic button – although some politicians might wish it would.Skip to next paragraph
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“If we get pistol-whipped by the market, if it punishes us for our failure to act, it might be the only thing that gets us to act,” he told CNBC.
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It wouldn’t be the first time a sell-off on Wall Street prompted Congress to do something. Back in October 2008, an initial failure by Congress to help the banking industry caused the Dow Jones Industrial Average to fall 30 percent, or about 3,000 points, in two weeks.
That hasn’t happened so far this time. Yes, in the past four trading sessions, the market has declined modestly. But since President Obama’s reelection, the Dow is off only about 130 points, or about 1 percent.
On Thursday, the Dow had a roller-coaster day, at one point falling nearly 140 points before recouping most of its losses when reports circulated the House would return on Sunday. At 4 p.m., the average was down only about 19 points.
What’s going on?
Wall Street’s shrug is partly related to its feeling that no matter what happens over the next few days, Congress will still come through early in the new year.
“It makes no difference whether it’s next week or on Jan. 4, when there is a new House of Representatives,” says David Kotok, chief investment officer at Cumberland Advisors in Vineland, N.J. “They will reach a deal because they have to reach a deal.”
Pete Davis of Davis Capital Investment Ideas, who advises many Wall Street clients about Congress’s actions, says many of his clients think as Mr. Kotok does – that Congress will act early in 2013.
However, “I keep telling them that is not my view,” he says. “They will reach agreement, but not before a fair amount of damage.”
Still, some on Wall Street think Congress doesn’t have to act right away.