According to many economists, one of the main factors that weighed down the US economy in 2013 and contributed to sub-trend GDP growth was the “fiscal drag” caused by government tax increases and expenditure cuts implemented during that year. Although exact estimates vary, it is widely believed that “fiscal drag” subtracted as much as 2.4% from US GDP growth in 2013.
Looking forward to 2014, it is generally believed that the net effect of fiscal policy (federal, state, local) on US GDP will be neutral, or at least that the drag effect will be much reduced. This has caused many economic and financial analysts to become very optimistic about the prospects for US economic growth in 2014 and bullish about US equities as represented by broad index ETFs such as the SPDR S&P 500 (SPY) and the SPDR Dow Jones Industrial Average (DIA). The reasoning behind this optimism is that