US agrees 'fiscal cliff' deal

2 January 2013

The FTSE 100 has broken the 6000-point barrier today for the first time since July 2011.

The milestone comes as the US finally negotiated its way to avoid the 'fiscal cliff'. The Footsie rose 2.2% (130 points) this morning to reach 6028.
However, Jason Hollands, managing director of business development and communications at Bestinvest, warns investors that despite the New Year rise for the London index, "volatility is a permanent feature of the equity markets".

He says although the uncertainty of the fiscal cliff that has dogged markets has been removed, today's euphoria will soon settle down.
US congress almost missed its 31 December 2012 deadline in coming to a resolution. It finally brokered a compromise at 11pm US Eastern Time. The Democrats wanted to maintain the tax cuts for 98% of the population, the Republicans fought for 100% - they eventually settled at 99%.
But, although Hollands believes this compromise will inject some much needed positivity in equity markets, Gary Dugan, chief investment officer for Asia and Middle East at Coutts, says "there are further major challenges in the coming months" for the US.


The country has given itself a two-month reprieve, but there will be more discussions to come at the end of February. "The issues of the debt ceiling and spending cuts have been left for another day, actually just a few weeks away, when all this partisanship will make headlines once again," says Richard Lewis, head of global equities at Fidelity.

Dugan warns that the partisan nature of the decision-making, along with how last minute it has been, will make markets nervous about medium-term investing.  

This article was written for our sister website Money Observer

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