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Investing Specialists

Cliff Crisis Averted, but Don't Get Too Comfy

Part of the so-called fiscal cliff was avoided, but the economy will still feel related headwinds in the first quarter, and more skirmishes loom.

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The S&P 500 jumped an astounding 4.6% this week, as Congress managed to dodge the worst of the fiscal cliff. As part of the deal, tax rates will go up for high-income earners, and a payroll tax holiday will expire, affecting income-earners across the board. 

The higher taxes will put a meaningful dent in the deficit in relatively short order. The amount of short-term deficit reduction implemented was more than I had expected, and will likely weigh on the first quarter.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.