The “fiscal cliff” deal does little to alleviate the uncertainty that remains about US fiscal policy this year and beyond; it is nonetheless positive for the US economy and the compromise made by both sides of the Congress is a significant first step. The political dogfight notwithstanding, investors should look beyond the headlines and not miss the wood for the trees. My base scenario is that there will be a long-term fiscal deal struck during the two year life of the 113th Congress that takes seat in Washington DC this month. In the US the manufacturing data is much stronger than forecast. Beyond the US, Europe is likely to stay stable not least because Germany has its elections in September this year; Italian elections in April look less of a destabilizing effect, the ECB’s OMT is in place and ready for use. Chinese growth is more robust than most expected. Despite the postponement of spending by consumers and corporate alike, it is also a fact that eventually the car breaks down and needs to be replaced, and so does the plant equipment. This is what drives the economic recovery. As the next round of jawboning in the US Congress starts and “debt ceiling” negotiations intensify, I expect the initial rally in equities to lose steam before the end of Q1 and endure a volatile Q2. My end of year target for the S&P 500 is 1554. A modest +7% upside from current levels but a +14-16% upside if you can pick the dip in Q1-Q2.