Market Preview: Let's Make a Deal

Updated from 5:38 p.m. ET to include information on lowered guidance from Scholastic.

NEW YORK (TheStreet) -- Are we really in for another month of speculation about the fiscal cliff?

Credit Suisse thinks so, saying it doesn't believe a deal is likely to occur until mid-December. Yikes. And, as stated yesterday, this agreement is likely to be more stop-gap than ultimate problem solver.

Here's how the firm sees this unwanted holiday drama playing out.

"Our Washington public policy team believes sequestration will be 'switched off' and most of the Bush tax rates will be extended for a year," Credit Suisse said of the initial deal to avoid the cliff. "In addition, there could be some down payment on deficit reduction now. The short-term deal could involve some 'revenue' raisers for upper-income taxpayers, and perhaps some modest spending cuts. The debt ceiling could also be lifted."

Once that's out of the way, work on the so-called "grand bargain" can begin. Credit Suisse sees taxes as the most divisive issue between the two parties.

"Republicans have signaled a willingness to accept new revenues," the firm said. "But they remain opposed to tax rate increases. Instead, they favor base broadening as opposed to higher rates, and demand spending cuts in return. The President says he is 'open to new ideas,' but remains staunchly opposed to a deal without tax increases on the 'wealthy.' Meanwhile, the depth of Democratic support for spending cuts, especially entitlements, is another unknown."

Just getting anything done though may be enough to placate Wall Street for a while. Federal Reserve Chairman Ben Bernanke voiced this sentiment in his latest speech on Tuesday, sounding hopeful about the prospects for progress on the big picture if the politicians can show an ability to play nicely now.

"Moreover, while the details of whatever agreement is reached to resolve the fiscal cliff are important, the economic confidence of both market participants and the general public likely will also be influenced by the extent to which our political system proves able to deliver a reasonable solution with a minimum of uncertainty and delay," he said. "Finding long-term solutions that can win sufficient political support to be enacted may take some time, but meaningful progress toward this end can be achieved now if policymakers are willing to think creatively and work together constructively."

1 2 Next › Last »