by Michael Tarsala
The Congressional Budget Office warned Wednesday that the U.S. economy is a 1966 Thunderbird ready to plunge over the fiscal cliff Thelma and Louise style if Congress fails to act by year’s end.
OK, those were not the agency’s precise words.
But what it did say was a lot more dire than its warning earlier this year that the fiscal cliff to trigger a mild first-half recession.
Here’s what the CBO thinks will happen if Congress allows Bush-era tax cuts to expire and automatic spending cuts go into effect:
- Fiscal tightening would lead to economic conditions that, “will probably be considered a recession.”
- A very sharp hit could be in store first half of the year, with the economy contracting 2.9%. That would mark the worst contraction since early 2009.
- The economy likely will contract 0.5% in calendar year 2013; the agency’s previous assumption was for 0.5% growth.
- Unemployment would likely rise to about 9%, up from 8% now, and stay above 8% through 2014.
- Effects could be felt for many years; the economy could continue to operate below its potential level until 2018.
“The main risk for domestic markets and stocks remains the fiscal cliff and pending election,” according to Mark Holder, manager of the Net Payout Yields investment model, in an interview last month.
The most at-risk stocks could be the high dividend-paying ones that have run hard the past 18 months, he says. They would be most affected by tax rates on dividends that could rise as high as 39.6%.
Is it possible for your investments to drive around the fiscal cliff, or perhaps lessen the fall?
One strategy could be to eschew a buy-and-hold mentality and position more aggressively for coming volatility. One way to do that could be with low-volatility investment choices offered by Covestor.
We offer a range of seven different dividend-focused investment models. Two of them — the Dividend and Income Plus Model and the High Dividend Low Volatility investment model zero in on stocks that also are typically less volatile than the market at large, based on beta.
Talk to us at Covestor, and we can help you find strategies tailored to your goals. If you would like to learn more, call us at 866-825-3005 X 703 in our New York office.
Invest with us, and your money is held in a top-tier brokerage account bearing your name, separate from everyone else’s money. It’s not sloshing around in a big pool run by us or some third party, and there is no one earning interest on it.
It’s your own account; you can see the balance change on a daily basis, make investment changes extremely quickly, and add to or pull your money at your complete discretion.
