Will US markets recover?

Ben Southwood
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The US market rally appears to have been one of those “act in haste and repent at leisure” types of market reaction which investors in hindsight wish they’d thought better of. Yesterday morning’s news from Europe has seen US markets plunge on the open as investors quickly realised that for all the noise, and relief the same old problems remain with the same set of protagonists looking for a solution.

The fiscal cliff may turn out to be just a distraction. If just a short-term solution is found to the problem, markets should recover fairly quickly. If tough negotiations lead to a drop in equity markets that should be viewed as a buying opportunity; US equities are still fundamentally attractive but valuations are not as good as they were a year ago.

“We will see some very intense negotiations pre-Christmas around the budget deficit and the negotiating stance of the two parties will start off poles apart... After a lot of wailing and gnashing of teeth, we are hopeful of a budget agreement along the lines of the Bowles-Simpson proposal which is based on a ratio of 3-1 spending cuts versus tax increases.