So sure, we’ve been talking about the fiscal cliff for months. But the operational assumption of much of Wall Street has long been that no one in Washington, DC would be stupid enough to essentially drive the US back into the recessionary territory they’ve spent the last four years clawing out of. Think again!
Republican House Speaker John Boehner’s decision not to hold a vote on the so-called Plan B option, apparently because he could not even get members of his own party to vote for a plan that had any tax increases in it whatsoever, seemed to get the attention of financial players. Here’s a look at how equities futures took the news.
One can’t help but be reminded of other prominent examples of Wall Street and Washington not being on the same page in recent years. Of course, who can forget Sept. 29, 2008 when stocks plunged after Congress voted down the first version of the bank bailout bill known as TARP. And then there was last summer, when the chaotic effort to raise the debt-ceiling and avoid a US default sent investors into a tizzy.
The markets seem a bit less ready to bet against stupidity leading to bad outcomes in Washington this morning. On the other hand, some argue that the markets have an important voice in the current debate, and the prospect of an ugly selloff similar to the previous episodes we mentioned above may help prod elected officials toward a deal. Or so you would think.