Youve heard the predictions for what happens if the country goes over the fiscal cliff: The economy will shrink, nervous consumers will stop spending, and the stock market will plunge.
But those doomsday predictions are overblown, some professional investors say.
The Associated Press posed a few big questions to investing experts.
Q: Whats going to happen in the stock market between now and the budget deadline of Dec. 31?
The market hates uncertainty. If theres no deal next week, expect stocks to fall.
We always knew we were going to get some volatility here, says Scott Carmack, co-portfolio manager at Leader Capital in Portland, Ore. Depending on leaders in Washington to come to some kind of agreement is like pulling teeth.
Besides, there are other incentives for people to pull money out of the market. Some professional investors are selling to lock in gains for the year. Others are selling because investments could be taxed at higher rates next year.
Q: What about after Jan. 1?
Deal or no deal, many investors dont expect the effects of the fiscal cliff to linger in the stock market for too long. One big reason is that everyone has seen it coming for months.
Were not overly concerned, says David Hefty, CEO of Hefty Wealth Partners in Auburn, Ind. The thing to keep in mind is that what hurts investors, what hurts the market, are things that are unexpected.
Q: What if theres no deal?
The impact of higher taxes and lower government spending would be felt only gradually, and Congress could always repeal them later, which is why many analysts dont expect panic.
For example, if higher taxes kicked in, workers might get less money in their first few paychecks of the year, and then the government might reach a compromise and refund the money.
The fiscal cliff is not really a cliff, its more like a $600 billion hill that will accrue over the year, Carmack says, referring to the amount of money that could be taken out of the economy from higher taxes and lower spending.
Jeffrey Saut, chief investment strategist at Raymond James, says he thinks government spending cuts will be bullish for stocks because the federal budget will be closer to being balanced.
Q: If there is a deal on time, will the market shoot higher?
Not necessarily. Stocks have been rising more or less steadily since mid-November a sign investors already believed lawmakers would compromise.
That signals that a successful compromise is factored into stock prices already. Much more important to the markets performance in 2013 is the economy.
Tim Biggam, market strategist at the brokerage TradingBlock in Chicago, says other world economic problems that have faded from the headlines, like the European debt crisis, could roar back.
Its kind of a false sense of security, he says, to have the fiscal cliff put everything to the back burner.
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