Here's Why the Dow Is Recovering


After opening lower this morning, things have begun to brighten for stocks, with the Dow (INDEX: ^DJI) and the broader S&P 500 (INDEX: ^GSPC) up 0.3% and 0.8%, respectively, as of 1:18 p.m. EST.

The macro view
Acknowledging you have a problem is always the first step toward solving it. In the wake of Tuesday's election, it's certainly reassuring to know that lawmakers are aware of a problem of a very pressing nature -- you might even call it a looming cliff.

One explanation for the market's awful two-day post-election performance is that, once the dust had settled, the same faces were still standing in the White House and within the Congressional leadership -- those that belong to people who have been so far unable (or, more accurately, unwilling) to agree to legislation that would steer the economy away from the so-called "fiscal cliff." For those who are not familiar with this term, it refers to the massively contractionary impact of automatic spending cuts and tax increases that are scheduled to take effect from the beginning of next year.

This morning, on the back of the release of a Congressional Budge Office study detailing the potential impact of the fiscal cliff, House Speaker John Boehner held a press conference to propose a one-year moratorium on the fiscal cliff that would avoid having to resolve the issue with a grand bargain that addresses the country's long-term financial position. In doing this, Boehner squeezed his message in before President Obama, who's scheduled to speak on the same topic shortly. The players are willing to play, any hope is possible, and that's why Mr. Market is finding his feet again after a two-day bender.

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Fool contributor Alex Dumortier, CFA has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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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