Dec 21 - It's a rocky day on Wall Street as investors react to a Republican rebuff of their leader's plan to avert the fiscal cliff. Are markets over confident a deal can be done? Conway G. Gittens reports.
Mutiny on the Congressional Bounty could make for the beginnings of a volatile end of the year for Wall Street. Republicans failed to fall in line under House Leader John Boehner's plan to raise taxes only on Americans with a $1 million or more paycheck, hitting the stock market in the gut. The selling actually started the night before with such an intensity that S&P equity futures had a mini-flash crash. Patience is running out, warns Peter Kenny of Knight Capital. SOUNDBITE: PETER C. KENNY, MANAGING DIRECTOR OF INSTITUTIONAL SALES, KNIGHT CAPITAL GROUP (ENGLISH) SAYING: "The sharp uptick that you've seen in the VIX, in the Volatility Index, in the last few days, the clear signs of dysfunction in Washington, the sharp sell-off in equities over the last 24-hours, are all an indication that markets are beginning to actively, aggressively hedge their bets, hedge their bets saying effectively: we are not sure Washington may be up to the task of coming together with some sort of solution for the fiscal cliff." But some Wall Street strategists like JP Morgan's David Kelley remain hopeful. SOUNDBITE: DAVID KELLY, CHIEF GLOBAL STRATEGIST, JP MORGAN ASSET MANAGEMENT (ENGLISH) SAYING: "Both sides know if they don't come up with a deal, there will be incredible pressure put upon them by the American people, by every business, by every taxpayer in the United States and because of that I think they will come up with a deal. Now the reason it's important to recognize that at the outset is - people shouldn't prepare for the worst case scenario of them not coming up with a deal." S&P Capital IQ says it's ok for investors to tweak portfolios, but their strategist Alec Young says keep the bigger picture in view. SOUNDBITE: ALEC YOUNG, GLOBAL EQUITY STRATEGIST, S&P CAPITAL IQ (ENGLISH) SAYING: "If you're a long-term investor, keep in mind that paying a higher tax rate on a much bigger gain in 10 or 20 years may turn out to benefit you more than a lower tax rate on a much smaller gain taken in 2012." Expecting volatile days ahead, investors should strategize, advises Steven Wood of Russell Investments. SOUNDBITE: STEVEN WOOD, CHIEF MARKET STRATEGIST, RUSSELL INVESTMENTS (ENGLISH) SAYING: "Volatility will be higher, so you need to look globally in a multi-asset strategy. That's going to help you ride out the volatility and increase the probability of hitting your goal." A goal that should not be muddled by what's happening or not happening in Washington.