Once again, the markets are focused on the fiscal cliff. Investors are slowly – very slowly – losing faith that anything will be resolved before the December 31st deadline.
The issue is many do not fully understand what will happen after the end of the year. As a result many corporate purchases, budgets and hiring are being put on hold. If they are on hold for too long it will impact GDP growth.
The markets have been slowly digesting this information. While there is no mass panic yet, some red flags are popping up:
1) The Dow is clearly trending down. This year’s upward momentum has stopped and investors are reallocating away from equities.
3) However, fear levels in the market (i.e. the VIX) are still low – especially when compared to past economic issues:
As I’ve mentioned in the past, the level of fear in the market will be our so-called “line in the sand”. Right now we are seeing a cautious move out of equities – but no panic yet. As we get closer to the December 31st deadline, watch the VIX to help gauge investors’ perception on what will happen in 2013.