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Stocks Tumble Whopping 20% If Lawmakers Flub 'Fiscal Cliff': Citi

A concerned trader on the floor of the New York Stock Exchange.
Timothy A. Clary | AFP | Getty Images
A concerned trader on the floor of the New York Stock Exchange.

According to new research from Citi, if lawmakers can’t stop their squabbling over the "fiscal cliff" and get their acts together – the sell-off in the stock market could be horrendous.

Citi research suggests that investors could be looking at as much as a 20% sell-off if the Dems and GOP can't find common ground on the fiscal cliff, or the confluence of tax hikes and spending cuts coming at the beginning of the year.

That means, if the S&P trades 1500 on Dec. 31st, it could tumble a whopping 300 points in early January!

And the Dow could drop over 2,000 points.

AndCiti’s research suggests the pain won’t be limited to equity investors. They also say oil prices would drop by $20 a barrel and unemployment would spike up to at least 9.5% through 2014.

"Largely the hit comes from taxes that were rolled back by President Bush coming back," explained Hilary Kramer, GameChangers Editor & Investment Strategist on The Kudlow Report. "We're talking about something like $450 billion."

Admittedly, that’s the worst case scenario outlined by Citi, but with both political parties unwilling to even talk about the issue until after the election, the worst case scenario remains squarely on the table.

And Kramer added that the Street is starting to get really worried.

“The transports were down 9% this week. That’s telling," Kramer said. According to 'Dow Theory' weakness in transportation stocks bodes poorly for the Dow Jones Industrial Average.

It’s not just Citi sounding the alarm. A new survey from BofA says the 'fiscal cliff' is now the top concern among investors.

Unless U.S. lawmakers reach a compromise to avoid the impact of the so-called fiscal cliff, the U.S. economy could face a sharp slowdown in growth, the Congressional Budget Office has warned. (Read More:Leaders Remain Far Apart on ‘Fiscal Cliff’ Fix.)

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