Dan Morris, global strategist at J.P. Morgan Asset Management, comments on the US fiscal cliff deal:
"The biggest surprise about the (temporary) resolution of the fiscal cliff dilemma was the strength of Republican party support: 85 votes in the House of Representatives and 40 in the Senate, despite previous pledges by many to never vote for a tax increase. This bodes well for the upcoming debate about spending cuts, the other half of the fiscal equation. The tax increases alone will not resolve the country's deficit problems and cuts will have to be made in order to bring expenditures closer in line with revenues. The next two months will continue to provide political drama, but should be less significant for the markets as any cuts will be implemented only slowly.
"The extension of unemployment benefits for another year will help support domestic demand, while increased taxes on wealthier Americans will impact investment decisions. With consensus estimates for GDP growth at just 2%, there is potential in our view for positive surprises. Earnings revisions for US corporations continue to rise and equity valuations are good (if not as good as they are in some emerging markets and parts of Europe). Liquidity from the Federal Reserve will only increase and we anticipate further, if modest, gains in US equities this year."
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