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Fiscal Cliff

Rally suggests fiscal cliff deal is done

Dan Bobkoff Nov 19, 2012
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Fiscal Cliff

Rally suggests fiscal cliff deal is done

Dan Bobkoff Nov 19, 2012
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Expectations have gotten so low for our politicians that just the fact that congressional leaders met with President Barack Obama is enough to get the market in a tizzy of optimism. 

“Previously, it seemed like each side had drawn a line in the sand, but now they’re at least talking,” says Michael Sheldon, chief market strategist at RDM Financial Group. 

The Dow Jones Industial Average zoomed more than 200 points, or 1.7 percent. The S&P 500 rallied 2 percent. 

To some, the rhetoric after Friday’s meeting at the White House sounded more promising than after the debt ceiling debacle last year.

“I think we’re still trading on the warm glow coming out of that meeting,” says Michael Feroli, chief U.S. economist at JP Morgan Chase.

Feroli thinks there’s little chance of a political train wreck this time. There will likely be some sort of deal to avert the fiscal cliff’s tax hikes and spending cuts. It’s just not clear what will be in it. 

“That deal might involve some austerity that could weigh on the economy,” Feroli says.  

But many think it’s unlikely the lame duck Congress will strike a grand bargain before next year. It could play out over many months. 

“First step is a stopgap solution,” says Joseph Carson of AllianceBernstein, a global asset management firm. “Second step is probably more meaningful discussions on more comprehensive reform.”

But none of that will be worked out this week. Congress is out of town for turkey. President Obama is in Asia. So, why not let the traders feel good until we get back to business after Thanksgiving.

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