The risk of an imminent fiscal crisis was averted when lawmakers agreed on some $600 billion in spending cuts and tax increases in January. This doesn’t mean we are out of the woods quite yet. We still have to address the long-term U.S. debt problem and the thorny issue of entitlement reform. However, the progress made to date on Capitol Hill has helped lift consumer sentiment and rekindle investor optimism. Accordingly, January was a good month for stocks, with funds continuing to flow from money markets into equities. Although continued flurries of concern over sequestered spending – a law that requires lawmakers to agree on some $85 billion in spending cuts over the next six months – might cause turbulence in the markets, many investment pros are feeling somewhat bullish.
Here’s an overview of recent market observations:
It should also be noted that some of the consumer spending data for early 2013 might be a little skewed because many corporations accelerated bonus and dividend payments in December 2012 to avoid possible tax hikes in the New Year. Accordingly, some individual incomes surged at year-end, only to decline in January when taxpayers also saw tax hikes. Those who didn’t benefit from December bonuses got no extra spending money in December and probably also saw less in their paychecks in January.
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