Apple enthusiasts lined up outside Apple stores across the globe in hopes of getting Apple’s new iPhone 5, which went on sale this morning. Many analysts predict that the iPhone 5 will be the largest consumer electronics debut in history. Apple may sell as many as 10 million iPhones in this first weekend alone. This is a very exciting time for Apple and the success of this new iPhone launch is critical to fuel growth, as Apple generates about two-thirds of its profit from the iPhone. Early estimates appear to be positive, as many analysts are predicting that Apple will sell an unprecedented 250 million units across the iPhone 5’s product life cycle.
Meanwhile, financial markets cooled this week as investors seem to be digesting the recent market rally and are starting to look for the next market catalyst. The S&P 500 was little changed this week and remains at a four year high. Now that the short term market euphoria generated from the Fed and the ECB announcements last week seem to have dissipated, investors should start to shift their focus to the impending fiscal cliff and the November elections.
The Fiscal Cliff
Speaking of which, the impending “fiscal cliff” is not a new problem, but investors will start to shift more of their focus on this issue as the current highly partisan nature of the political environment has made a compromise difficult to reach thus far. Lawmakers have faced this issue for three years, but Congress –mired in gridlock – has largely avoided the issue and has refused to compromise and search for a real solution.
The possible effects of the “fiscal cliff” could be dramatic. With the combination of higher taxes and spending cuts the federal deficit would be reduced by an estimated $560 billion. Meanwhile, many economists estimate that the policies that are set to go into effect should Congress fail to act would cut GDP by 4 percentage points in 2013, which would send the economy into recession. Other estimates include rising unemployment by at least 1 percent, which is roughly the loss of 2 million additional jobs.
As the “fiscal cliff” looms the effect on the overall economy should start to become apparent even before 2013. The lack of resolution may change business and consumer behavior as spending will most likely drag in anticipation of the impending tax changes. We will continue to monitor these developments closely as they unfold.
On another note, I would like to share with you that Ryan Powers passed his test and will become a Certified Financial Planner ™ (CFP®) practitioner. This is a great accomplishment and we are proud to have Ryan as a member of the Paradigm team.