Fiscal cliff deal sends markets shooting higher

Late Tuesday night the U.S. House of Representatives passed a budget bill meant to ward off the fiscal cliff. Many House Republicans balked at voting for the bill because they wanted a deal that did more to cut government spending.

Because lawmakers didn't have a budget compromise in place when the new year started on Tuesday, the U.S. technically did go over the fiscal cliff, meaning tax increases and government spending cuts automatically kicked in that day. Some analysts worried that the combination would kick the U.S. back into recession. But the bill passed Tuesday night by the House will prevent the cliff from taking hold. It already has Senate approval, and now awaits a signature from President Barack Obama.

Some investors, even as they watched the stock market leap higher, cautioned that the euphoria could be short-lived. The deal leaves a host of questions unresolved. Notably, the core issue of the fiscal cliff standoff in Washington has been the country's long-term plan for trimming its debt, and the deal doesn't include any significant deficit-cutting agreement.

Next up is what could turn into a vicious fight over the debt ceiling, or how much the government is allowed to borrow. And the U.S. could still get its debt rating downgraded by one of the ratings agencies. The stock market plunged in August 2011 after Standard & Poor's cut the U.S. government's credit rating.

Some investors also noted that the fiscal cliff, which has dominated headlines for weeks, is only masking serious problems punctuating the world economy, including the still-unsolved European debt crisis and middling growth for the U.S. economy. Wednesday, the president of debt-wracked Cyprus said he'd refuse to sell government-owned companies, a provision that the country's bailout deal says it must at least consider.

See also:

• Tax reform: The battle has just begun
• Senate makes estate tax permanent
• 6 market predictions for 2013