Over the past several weeks, the overall stock market has resembled a roller coaster — down up, down up and then a quick drop. That is the case no matter which major market index we look at. The only real difference among the Dow Jones industrial average, the S&P 500 and the Nasdaq composite index has been the degree of the drop. While the first two indexes have fallen more than 6% over the past month, the Nasdaq composite index dropped a more pronounced 7.5% in the past four weeks and nearly 11% since Sept. 14.
With the presidential election behind us, the primary driver behind the drop in the stock market has been the uncertainty associated with the looming “fiscal cliff.” In the December issue of my investing newsletter, Power Trend Profits, I did a deep dive on the “fiscal cliff,” what it is and what the impact will be on tax rates, tax deductions and more. While the politicians in Washington will look to hammer out a deal to avert the cliff, uncertainty over when that deal may be reached as well as what it entails will have companies and consumers hoping for the best but planning for the worst. To me, it means that as we inch closer to the year’s end without a deal, companies will revisit their forecasts, slow if not halve capital spending projects, freeze hiring and at least prepare for reductions in head count.
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