In the last month, there seems to have been some economic progress both in the US and in Europe - The S&P 500 has gained about 5% recently after a sell-off that took it down almost 8% immediately after the U.S. election on November 6th. But investors remain wary in the see-saw stock market.Until the fiscal cliff is solved, the volatility looks set to remain.Discussions on Capitol Hill are aimed at avoiding big automatic spending cuts and tax hikes, known as the fiscal cliff, that will start taking effect at the beginning of January 2013. The fears remain that if the fiscal cliff is not avoided the US will be pushed into further recession next year.
Other positive news from the US is that data showed the U.S. economy grew faster than initially thought in the third quarter and sales of previously owned U.S. homes rose more than expected in October, a sign that the housing market recovery advanced into the fourth quarter despite a mammoth storm and concerns over looming tax hikes.
There may be some light at the end of the tunnel in the Eurozone. the latest thinking is that the Eurozone could emerge from the debt crisis in 2014. But that will come only after the “maximum pain” caused by austerity measures is felt this year and into 2013. It seems that the current account deficits of Greece, Spain and Portugal have shrunk already.The underlying improvements in exports and competitiveness in these Club Med countries should bode well for the future. however; the question is whether Europe’s politicians can carry their electorates with them long enough for people to feel an improvement before the social strains caused by austerity become too hard to live with!