US FISCAL CLIFF DEAL: A STOPGAP, NOT A SOLUTION

Analyzing a Last-Minute Agreement - issued by BlackRock Investment Management (UK) Limited

Highlights:

• The 11th-hour deal is better than nothing... but its limited scope and the need for additional negotiations will likely translate into increased volatility for financial markets. Expect more late-night drama from Washington in the coming months.

• Higher payroll taxes will likely depress US consumer spending in the short term. This could result in a drag on the US economy early in the year. We expect a rebound later in 2013, but believe gross domestic product (GDP) growth is unlikely to exceed the 2% annual rate we have seen in recent years

• For equities, we prefer US mega-cap companies and non-US stocks (especially emerging markets, but also exporters on Europe's periphery). Dividend stocks look attractive, especially those companies that are cash-flow rich and have a track record of increasing payouts.

• Within fixed income, we like to focus on credit sectors - including high yield and emerging market debt. US Treasuries look dangerous with yields low and duration risk high.

 

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