Wall Street: Going off ‘cliff’ with a bungee cord
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The 1987 crash. The Y2K bug. The debt ceiling debacle of 2011. All these events, in the end, turned out to be buying opportunities for stocks. So will the "fiscal cliff," some investors say as they watch favorite stocks tumble during the political give-and-take happening in Washington.
The first round of talks aimed at avoiding the "fiscal cliff" caused a temporary rise in equities on Friday, signaling Wall Street's recent declines could be a buying opportunity. The gains were small and sentiment remains weak, but it suggests hope for market bulls.
The S&P 500 is down more than 5 per cent in the seven sessions that followed US President Barack Obama's re-election. Uncertainty arose as attention turned to Washington's task of dealing with mandated tax hikes and spending cuts that could take the US economy back into recession.
Some see the market's move as an overreaction to hyperbolic headlines about policy gridlock in Washington, believing stocks may start to rebound in what should be a quiet few days ahead of the Thanksgiving holiday next Thursday.
"It just doesn't seem to make any sense that you suddenly wake up the day after the election and realise we've got a fiscal cliff," said Krishna Kumar, of hedge fund Goose Hollow Alpha Advisors.
Not long ago the S&P was on target for its second-best year in the last 10, riding a 17 per cent advance in 2012. That's been halved to about 8 per cent, which isn't bad but disappointing compared with just a month ago.
Investors have been selling the year's winners. Apple is down 25 per cent from its peak above $700. General Electric is down 14 per cent; Google has lost 16 per cent.
The current crisis is similar to last year's fight to raise the US debt ceiling, which led to the downgrade of the United States' top credit rating in early August 2011.
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