The other day a friend told me that his advisor was encouraging him to sell all of his investment assets to steer clear of the impending "fiscal cliff." The 'cliff' refers to dire financial consequences should our Congress fail to act on certain measures before the new year, any one of which has the potential to derail our economy. They include $1.3 trillion in automatic government spending cuts (most aimed at defense, arguably the more productive part of government spending) set by Congress as a failsafe measure should they be unable to cut spending through their normal legislative processes. The Bush tax cuts are set to expire this year unless Congress reinstates once again. A slow economy is an awful time to raise taxes. Additionally, significant tax and fee increases are set to begin next year, particularly aimed at investors as part of Obama-care. Further impeding the flow of capital investment through higher taxes and fees, again is the wrong thing to do during a slow economy.
There’s a stock market axiom that says, as January goes, so goes the year. According to Bloomberg, since 1950, the S&P 500 has moved in the same direction during the year as it did in the first week 73% of the time. The S&P 500's drop so far this year marks its worst start since 1990, when it fell 4% in the period through Jan. 20th. The index lost 6.6% that year.
The professional future-tellers, the highly respected economists and analysts who have been glamorized in recent years by CNBC, CNN, and Bloomberg News all fall in a pretty tight range saying that markets should grow about 8-10% this year, the economy should grow about 3.5% and corporate earnings, about 10%.