It is clear that the stock market was somewhat distracted by politics in the run-up to November 6. However, on November 7, the market woke up to what it had ignored for some time – the fiscal cliff.
Scheduled to occur on January 1, the cliff combines federal tax increases and expenditure cuts. Both of those changes could have a harmful impact on the US economy.
However, it appears that the President and the Congress are anxious to avoid another messy budget debacle – as occurred in the summer of 2011. It is reasonable to expect that the parties will come to some agreement and the full cliff will not occur.
We believe that trying to time these events is nearly impossible. If your current asset allocation is well diversified, we recommend you stay the course. That is your best defense against the unknowns of politics and the economy.