What Will the 'Cliff' Mean for Stocks, Bonds, Gold and Oil?
When it comes to the "fiscal cliff," there are a number of scenarios that could end up playing out.
Last week on CNBC's "Futures Now," I was confident (perhaps boarding on naive) that a good solution would be reached. After a week of much rhetoric from both sides, I no longer hold that rosy opinion. Therefore, I will briefly try to weed through the different "what ifs" and help you navigate what is sure to be a volatile ride for the rest of the year.
First, let's say there is a deal on the cliff with spending cuts and tax increases — in other words, a balanced solution to the problem. In this case, I believe confidence will come back in a big way, and you can look for the S&P to advance, maybe back towards 1,500. In this case, bonds become a sale. As for gold, I would look for it to be neutral or slightly weak — going to around $1,670 to $1,700 at least in the near term. And with renewed confidence in the outlook for the economy, energy will also advance. You should look for $90 to $95 a barrel in the price of crude.
If we do go over the "cliff," then look for the S&P to move lower, possibly testing the 1,350 to 1,300 area. Bonds would advance — look for record low on yields. Oil would move lower, and I doubt it would hold $84.50. Gold would advance, perhaps testing $1,800.
The third scenario is a deal along the lines of what President Barack Obama has proposed, with tax increases and little in the way of spending cuts. If this ends up happening, then look for the S&P to fall, gold to rise, bonds to move higher, and oil to go first fall and then rise. In the long run, I believe that this is the worst of all outcomes — yes, even worse than going over the cliff. With all those dollars being taken out of consumers' pockets, we will wind up with a weaker economy than we have today. This will once again force the Fed to provide additional stimulus, which will weaken our dollar and cause commodity prices to rise. Finally, it will stunt any growth the economy has been enjoying.