It is quite likely that risk markets may initially bounce for some period of time on news of an agreement out of Washington mitigating (deferring) elements of the “fiscal cliff”. It is also probable however that any such bounce will again be fleeting (as it was in 2010 and 2011) in the face of the spreading global recession, falling corporate profits and weakening consumption demand poised to continue over the next few quarters. It is important to understand that during secular bear deleveraging periods like our present climate, it is typical for the stock market to re-test the lows of the previous bear market phases, being in this case, 2002-03 and 2008-09 (see chart of Canadian TSX as an example below). Never a guarantee–the world is full of uncertainty; but weighing probabilities and adjusting allocations decisions accordingly, is the only prudent course for investors. Best to err on the side of capital preservation and keep eyes wide open.
Source: Cory Venable, CMT, Venable Park Investment Counsel Inc.
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