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Market Preview: The Undaunted Consumer

Stocks in this article: GOOG VZ MSFT EBAY MLNX SPY ^GSPC ^IXIC ^DJI

NEW YORK ( TheStreet) -- While the smart money is apparently worried about the fiscal cliff, the man on the street seems confident a solution will be reached.

Looking at recent data patterns, Capital Economics concluded the U.S. economy "appears to be developing a split personality" as consumers continue to spend fairly freely while businesses keep tapping the brakes.

"Households, seemingly oblivious to the scheduled jump in marginal tax rates that will reduce their after-tax income next year, are apparently growing in confidence and boosting expenditure," wrote Paul Ashworth, the firm's chief U.S. economist. "At the same time, alarmed by the looming fiscal cliff and the global slowdown, businesses appear to be slashing investment."

Ashworth pointed to the pick-up in retail sales growth in the third quarter and heavy demand for light motor vehicles, sales of which reached a four-year high in September, as evidence that Main Street is feeling pretty flush. Businesses, on the other hand, not so much.

"Consumer confidence surged to a five-year high in October, while the growth rate of orders for capital goods fell deep into negative territory in September, for the first time since the height of the recession in early 2009," he wrote. "One small comfort is that this divergence isn't showing up in the import figures. Imports of both capital and consumer goods slumped in the three months to August which, other things being equal, is good for GDP growth."

Ashworth expects the reality of the fiscal cliff to become more of an issue for consumers as 2012 winds down.

"The outlook for consumption and investment both depend crucially on whether the fiscal cliff is averted or not," the firm said. "The potential tax increases are likely to weigh more on consumption as we get closer to the year-end deadline. If, as we expect, a deal is eventually done to avert the fiscal cliff, however, then we could see a bounce-back in investment early in the new year, as pent up demand is released."

Last week's 2%-plus decline for all three major equity indices has been largely erased by this week's drive higher as earnings season has largely been less disastrous than expected so far and there continues to be bright spots in the economic data, such as Wednesday's positive reads on housing starts and builder permits.

If consumers can continue to lead the way and the fiscal cliff is avoided, the market could very well get the positive catalyst it needs to surge into the end of the year.

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