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There are just nine days to go before $85 billion in federal spending cuts takes effect, and Congress is in recess all week. Is it time for investors to panic the way they did prior to the fiscal cliff?
So far it’s not happening. Sure, stocks are down a couple ticks today, but the S&P 500 and Dow Jones Industrial are already at five-year highs. Stocks are up close to 5% this year. A mild one-day pullback is not a sign of panic.
The real question is: should investors be panicking as this latest fiscal deadline draws near?
As usual, Republicans and Democrats are bickering over how – or if – the sweeping spending cuts can be avoided by March 1. A compromise seems even less imminent than it did with 10 days to go before the fiscal cliff deadline.
The cuts were supposed to take effect on January 1 as part of the fiscal cliff. Instead, the $86 billion in cuts was simply delayed for a couple more months.
President Obama said yesterday that allowing such drastic spending cuts “will jeopardize our military readiness, (and) eviscerate job-creating investments in education and energy and medical research.”
Wall Street has thus far responded to Obama’s grave warning with a yawn. They’ve seen this before. In August 2011, Congress waited until the last minute to raise the debt ceiling. A fiscal cliff deal was reached at more like the 11.99th hour. The latest debt ceiling deadline was pushed back three months in January.
Same play, different act. Spending-cut deadlines are old hat to investors at this point. Panic may not set in until the last 48 to 72 hours or so – if ever.