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Kent Thune

Buying Into the Crisis: Sequester, Fiscal Cliff, Debt Ceiling and More

By February 27, 2013

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Is it just me or does it seem as if every time there is a political challenge or fiscal deadline in Washington, it's blown out of proportion by the media, negative sentiment floods the market, stock prices fall temporarily, then prices move higher once the worst-case scenario becomes priced out and the underlying desire to push higher resumes? This post falls under the category of "intuitive market timing" or perhaps a logical person's perspective on the not-so-logical market.

Buying Into the Debt Ceiling

With Friday's looming "Sequester," it seems as if investors have already caught on to the worry-oversold-then bounce higher pattern the market follows with political and fiscal crises.  Take a look back at the Debt Ceiling crisis back in August of 2011.  Once the political bickering settled and the Debt Ceiling crisis had past, the United States lost its AAA credit rating and the Dow Jones Industrial Average Index plummeted 635 points (or 5.6%) in one day. However, the Dow rose 23% in price from August 10, 2011 through August 10, 2012.  As of the market's close today (February 27, 2013) the Dow has risen 31%.  Of course I have the luxury of hindsight, but I'd call the Debt Ceiling of 2011 a great buying opportunity, not a time to panic.

Buying Into the Election and Fiscal Cliff: Sequester Shrugged Off?

Now fast forward to the presidential election of 2012, where markets fell around 5%, with the worrisome Fiscal Cliff looming at year's end.  From November 15, 2012 through February 27, 2013, the Dow climbed 12%.  Again, a strong buying opportunity, not a crisis worthy of panic.

This week it seems as if investors have caught on to political games and have shrugged off concerns that politicians will wreck the economy (at least not more than is already expected).  If pattern follows, there won't be a deal by Friday, markets will fall temporarily, politicians will announce some kind of deal by mid-March and stocks will resume their bull market path to record levels.

That is, if investors haven't already priced this in and we just skip past the Sequester and face the next Debt Ceiling "crisis" due May 19, 2013.

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