Despite a resolution to the fiscal cliff, the consequences of the budget deal will still negatively affect the markets and exchange traded funds. One iShares analyst points out some potential pitfalls and opportunities in the months ahead.

“The fiscal drag left in place by the deal, coupled with the lingering uncertainty surrounding the debt ceiling, leads us to expect a weak economic start to 2013,” Russ Koesterich, Managing Director, BlackRock’s Global Chief Investment Strategist, said in a research note.

With the debt ceiling just right around the corner, investors will probably see more market swings.

“We expect to see more volatility,” Koesterich said. “Investors should be prepared for a bumpier ride in 2013, at least until Washington produces a more definitive, long-term agreement.”

For instance, the CBOE Volatility Index, or “VIX,” topped out around 23 before the fiscal cliff deadline, but it has since dipped to levels last seen in 2007. [New Lows for Volatility ETFs as VIX Drops to 2007 Levels]

  • iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX)
  • VelocityShares Daily 2x VIX Short-Term ETN (NYSEArca: TVIX)

“We expect consumption levels to be weak,” Koesterich added.

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