Recent US economic data suggests GDP growth will remain at a trend-like pace in 4Q2011. Meanwhile, Standard & Poor’s 500 earnings are up more than 15% over last year and have surpassed their 2007 peak, while price-to-earnings ratios remain fairly low. In addition, money and loan growth are strengthening in the US and there is no sign of a renewed credit crunch. That is a big change from the worries of the summer debt-ceiling debacle and tightening in financial conditions. On the other hand, while it appears job growth has also improved enough to sustain the recovery, it has not been strong enough to reduce the unemployment rate significantly.

A big unknown for investors is the outcome of deliberations by the Congressional Joint Select Committee on Deficit Reduction, the so-called “super committee”. The group is charged with slashing the federal debt by US$1.2 trillion ($1.56 trillion) over the next 10 years, though any resulting spending cuts or tax increases related to long-term debt reduction will not be implemented until 2013. The consensus is that this committee will achieve approximately half of the deficit-reduction goal, meaning a renewed sequestration process will begin January 2013 for the remaining US$600 or so billion.