GOLDMAN: Investors Need To Wake Up Because The Fiscal Cliff Is Only Getting Scarier
Aug. 19, 2012
It may be time for a reality check for investors who are shrugging off the fiscal cliff.
That’s according to Goldman Sachs chief U.S. equity strategist David Kostin, who writes in his latest note to clients that “portfolio managers have been swayed by hope over experience” when it comes to anticipating the effects the fiscal cliff will have on markets.
Kostin writes that investors aren’t giving as much attention the fiscal cliff as they should be, and that may be helping to set the markets up for a repeat of last year, when the debt ceiling negotiations sent stocks plummeting.
From the note:
A look at the 2011 trading pattern of the S&P 500 explains the reason for our belief that the market has an asymmetric risk profile and offers more downside than upside. Last year the deadline for Congress to raise the federal debt ceiling was known months in advance. Nevertheless, Congress was unable to reach an agreement that satisfied all factions. Investors were stunned and the S&P 500 plunged 11% in 10 trading days (and more than 17% from the level one month prior to the deadline). Eventually Congress reached a compromise on raising the debt ceiling.