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Uncertainty around the fiscal cliff continues to be at elevated levels as Washington has yet to hammer out a deal.However, stocks are up and according to a new survey from Morgan Stanley, business confidence is rebounding.
The new consensus appears to be that an agreeable deal will eventually get done. If not by the end of the year, it’ll certainly get done early next year.
This idea has put portfolio managers at ease, writes Goldman Sachs’ David Kostin:
New Year’s is just two weeks away – and with it the statutory tax hikes and spending cuts known as the fiscal cliff. The stock market appears to have adopted a surprisingly benign view that Congress and the White House will reach agreement to avert the full impact of the fiscal contraction. Many portfolio managers now explicitly assume a deal will be struck by year end (or possibly early January) that raises taxes on upper income Americans and curbs the growth rate of entitlement spending.
As reflected by the sinking VIX, the stock market appears to be full-blown complacent about the fiscal cliff. hopefully they won’t be disappointed.