Is a Fiscal Cliff Resolution Already Priced In?
by Todd Bunton
December 18, 2012 | Comments : 11 Recommended this article: (1)
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January 1, 2013 is rapidly approaching and fiscal cliff negotiations are starting to heat up. Both sides have given in a bit on their original proposals, and it finally seems like a deal is within reach.
But has the stock market already priced in a resolution?
It certainly seems that way. Take a look at the chart below on the S&P 500. Prior to the fiscal cliff and election dominating the headlines, the market was sliding thanks to the worst earnings season since the Great Recession ended in 2009. Just before the election, the index was hovering around 1430. And it sold off just after the election as investors suddenly focused on the looming fiscal cliff. But since mid-November the S&P has recovered these losses, and on Tuesday it actually broke above 1430 to reach levels not seen since before the election.
It seems to me that a fiscal cliff deal is already baked into the cake. Do you agree? And if so, then what does that mean for the market going forward?