As earnings season is upon us, we will no doubt hear that expectations are so low that the market has it all priced in and upside is the only way to go *(apart from the fact that Q4 expectations remain in the land of faeries and unicorns)*. Of course Q4's hockey-stick is critically going to depend on the fiscal-cliff - post-election. As we noted here [4], there are few positive outcomes from the fiscal cliff 'negotiations' with even a best-case 'possibility' of a 0.9% fiscal drag in the first half of 2013. Using trend growth of 3%, and Goldman's estimate of around a 4% drag (lower than the 6-plus% drag the CBO estimates), we can work back from the **consensus 2.05% GDP growth for 2013** to figure what the market's priced in probability of a fiscal-cliff resolution is. It would seem the *market is more than happy to almost entirely dismiss the fiscal cliff*. Back of the envelope math implies only a 1.5% probability of the full fiscal cliff impact and therefore any **expectation of an equity market rally on hopes of a compromise seem far-fetched with well over 95% priced in currently**.

- Trend GDP growth ~3%
- Consensus 2013 GDP growth 2.05% (via Bloomberg)
- Goldman compromise fiscal drag estimate -0.9%
- Goldman full fiscal cliff drag estimate ~-4.0%

Implies a 1.5% chance of full fiscal cliff OR **98.5% probability of compromise is priced into estimates**...

We used Goldman's estimates in the above calculation (from here [4]) but the CBO's estimate (seen here via UBS [6]) are even higher and thus mean the market is pricing in even lower odds of a fiscal cliff scenario...