Fiscal Cliff, Part 2: Here We Go!

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After breaking a seven-week winning streak last week, stocks are off to a positive start on Monday, with the S&P 500 and the narrower, price-weighted Dow up 0.63% and 0.55%, respectively, as of 10:05 a.m. EST.

The macro view: T minus 4 to the sequester
Maybe the macro picture isn't the only thing that counts after all: Moody's knocked the U.K.'s credit rating down from its "AAA" perch on Friday, but U.K. stocks are brushing it off as if nothing happened, and the
FTSE 100 index has gained a solid 1.3%. In truth, the consensus appears to be that this downgrade was long overdue -- after all, it's hard to justify rating the U.K.'s credit more highly than that of the U.S.

And speaking of the U.S. government's finances, the so-called "sequester" is scheduled to begin on Friday, barring any last-minute intervention by Congress. This involves across-the-board spending cuts in order to achieve $85 billion in savings this year. The sequester was originally conceived during the 2011 debt ceiling showdown -- it was then thought to be so drastic that it would force the two parties to find a compromise. On that basis, it would appear that it wasn't drastic enough, as no compromise is in sight.


What is the impact of the sequester on growth? Roughly half a percentage point in 2013, if we are to believe the forecasts from a range of government and private sources. That's not insignificant, considering that the latest forecast from the National Assocation of Business Economists is calling for just 2% growth this year. Furthermore, the half a percentage point covers only the effect of the sequester; it does not include the expiration of the payroll tax holiday, which took effect on Jan. 1, for example. One-third of NABE panelists estimate the total impact of the budgetary tussles at between one-half a percentage point and a full percentage point.

Note that the U.S. unemployment report for February will not be released this coming Friday -- even though it's the first Friday of the month -- but on the following Friday instead (March 8). With the sequester on the agenda, we should have all the macro-driven volatility we need for the week, anyway.

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The article Fiscal Cliff, Part 2: Here We Go! originally appeared on Fool.com.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on LinkedIn. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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