CBSMarcketWatch.com:
Dictionary makers may begin printing John Boehner’s photo alongside the definition of “hapless” after the House speaker was humiliated Thursday by fellow Republicans, sending global markets into a swoon amid fears his inability to corral enough votes to among his own party to back a proposed “Plan B” bodes ill for efforts to avert the dreaded fiscal cliff.
While political prognosticators handicap Boehner’s chances of holding on to the speakership when a new Congress reconvenes in January, market strategists were left to adjust their estimates of just how far stocks might fall as Jan. 1 approaches without prospects of a budget deal in sight.
“The first reaction among many seems to be that if the speaker cannot get enough votes to raise tax rates on those earning $1,000,000 or above, then the scope for an agreement with the president is even more narrow than we thought, and the day after the election, we published a note in which we moved going off the cliff into the base case scenario,” wrote Dan Greenhaus, chief global strategist at BTIG LLC in New York.
That early November call had already made BTIG more pessimistic than most on the Street, he said.
So how ugly could it get for stocks if negotiations between the White House and congressional Republicans don’t see quick progress? Greenhaus contends a 15% decline along the lines of what was seen in the spring of 2010 and summer of 2011 “is a fair approximation of the full, cliff-induced decline one might expect.”
“From a peak of 1,465, that implies downside risk down to about 1,250 or so on the S&P 500 SPX +0.55% . Even if one thinks a 10% decline is more reasonable, then 1,320 is your downside target and judging by the action in futures [Thursday night], a swift repricing is in order and is already occurring. We have been less sanguine than others in the face of December’s rally — 2% MTD — and if we’re going off the cliff, even for a short period, then those gains will not last long,” he wrote.
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Dictionary makers may begin printing John Boehner’s photo alongside the definition of “hapless” after the House speaker was humiliated Thursday by fellow Republicans, sending global markets into a swoon amid fears his inability to corral enough votes to among his own party to back a proposed “Plan B” bodes ill for efforts to avert the dreaded fiscal cliff.
While political prognosticators handicap Boehner’s chances of holding on to the speakership when a new Congress reconvenes in January, market strategists were left to adjust their estimates of just how far stocks might fall as Jan. 1 approaches without prospects of a budget deal in sight.
“The first reaction among many seems to be that if the speaker cannot get enough votes to raise tax rates on those earning $1,000,000 or above, then the scope for an agreement with the president is even more narrow than we thought, and the day after the election, we published a note in which we moved going off the cliff into the base case scenario,” wrote Dan Greenhaus, chief global strategist at BTIG LLC in New York.
That early November call had already made BTIG more pessimistic than most on the Street, he said.
So how ugly could it get for stocks if negotiations between the White House and congressional Republicans don’t see quick progress? Greenhaus contends a 15% decline along the lines of what was seen in the spring of 2010 and summer of 2011 “is a fair approximation of the full, cliff-induced decline one might expect.”
“From a peak of 1,465, that implies downside risk down to about 1,250 or so on the S&P 500 SPX +0.55% . Even if one thinks a 10% decline is more reasonable, then 1,320 is your downside target and judging by the action in futures [Thursday night], a swift repricing is in order and is already occurring. We have been less sanguine than others in the face of December’s rally — 2% MTD — and if we’re going off the cliff, even for a short period, then those gains will not last long,” he wrote.
MORE