Two words: fiscal cliff.
On the day after Christmas, the CEO of Starbucks (SBUX -2.43%), Howard Schultz, posted a letter online titled "Let's Come Together, America." In it, he lamented about the failure of our "elected officials to come together and reach common ground on [the fiscal cliff]," a series of tax hikes and spending cuts that are set to take effect at the beginning of January.
But unlike other CEOs who have said similar things, Schultz took it one step further, instructing Starbucks' employees in Washington, D.C. to write "come together" on all of its customers' cups. While this is most certainly a gimmick, when the CEO of a Fortune 500 company feels the need to take it to this extreme, it may be evidence that there's something seriously wrong with the group of people we've elected to represent our interests in Washington.
And if you need any further proof, just take a look at the market today. As I write, all 30 of the stocks on the Dow Jones Industrial Average (^DJI 1.18%) are lower for the day. This is despite the fact that two reports issued this morning show that new-home sales rose to their highest level last month in more than two years, and that the number of Americans filing for unemployment benefits last week was at a four-year low.
The significance of this for investors is simple. In the absence of an agreement, stocks could very well get cheap -- and, if I were a betting man, it seems that the financials like Bank of America (BAC 1.00%) and JPMorgan Chase (JPM -0.60%) could lead the way down. Despite B of A being up more than 100% this year, the waffling in Washington is still affecting it. Virtually all economists are predicting a recession if the economy is indeed allowed to careen over the proverbial cliff. And, despite the known inaccuracy of economic predictions, the mere fear of such an eventuality could trigger a sell-off.
So, what should you do? Two things. First, don't panic if and when such an eventuality materializes, as stocks will invariably rebound once such an agreement is reached. Second, you might want to reserve some capital in case things do get cheap, as "buying low" is a pivotal part of successful investing.
