'Fiscal Cliff' Fever Breaks—Does the Bounce Have Legs?

After a rough month for stocks and with the Nasdaq sliding into "correction" territory, there was a lot of downbeat talk this weekend. On Monday, Goldman Sachs Chief U.S. Strategist David Kostin reiterated his year-end target of 1250 for the S&P 500, or roughly 8% below Friday's close.

"Uncertainty swirling around the 'fiscal cliff' that must be resolved by year-end, the pending jump in capital gains taxes at the start of 2013, and the debt ceiling that will be reached in late February represent clear and present downside risks to the market in the near-term," Kostin writes, effectively summarizing the bears' case for a continuation of the recent downturn.

So, of course, stocks jumped Monday morning as the market likes to disappoint consensus expectations whenever possible. In recent trading, the Dow was up 155 points while the S&P and the Nasdaq were each up over 1.5%.

The rally is being attributed largely to hopes for a deal to avoid the fiscal cliff, which helped spur Friday's midday turnaround.

"The fever broke when it comes to the intense focus on the fiscal cliff," my colleague Michael Santoli says in the accompanying clip. Along with news that President Obama is reaching out to business leaders such as Warren Buffett and Jamie Dimon, hopes for some agreement on the cliff should aid the market in the "very" short term, Santoli suggests.

Indeed, the new (new) consensus is the market is set up for a short-term technical bounce from "oversold" levels.

"Higher closes on Monday and Tuesday confirm the key reversal [on Friday] signaling a quiet Thanksgiving rally, which could be the start of a Santa Clause Rally," writes Richard Suttmeier, chief market strategist at Value Engine.

But optimism for anything more than a near-term bounce remains in short supply for reasons discussed in the accompanying video, including:

Conciliatory talk about avoiding the fiscal cliff is one thing, but an actual deal remains elusive. Even if a deal is reached, the risk of higher capital gains taxes is prompting some investors to dump shares before Dec. 31. Plus, another debt ceiling showdown is looming in February.

The global economy is slowing with concerns moving from Europe's "periphery" to its core. "The economies of both Germany and France have slowed to a crawl which means that with two consecutive quarters of negative collective GDP growth, by some definitions the Eurozone overall is now in a recession," writes Randy Frederick, managing director of Active Trading & Derivatives at Charles Schwab.

Third quarter earnings were weak and fourth-quarter guidance wasn't very encouraging, solid earnings Monday morning from Lowe's and Tyson Foods notwithstanding. A WSJ story about falling business investment reflects executives' lack of confidence for 2013 and may become a self-fulfilling prophecy.

Geopolitical risks are rising as Israel prepares for a possible ground assault on the Gaza Strip. While there's no direct threat to oil supplies, crude prices jumped Friday on the threat — however slim — that tensions between Israel and Hamas spill into a wider regional conflict.

"If the [S&P 500] can travel above 1362 it may be able to recapture the 1390 level that I have deemed to be critical. However, until that happens I am going to err on the side of caution," writes Raymond James strategist Jeff Saut.

In sum, the consensus now is for a near-term bounce but nothing of substance, which probably means the market will do something else entirely. Although there's plenty to worry about, history says Santa Claus is likely to pay the bulls a visit: Since 1950, November-January has been the best three-months span for stocks, according to The Stock Traders Almanac.

Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo! Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.