Lawmakers managed to seal a last-minute deal on the Fiscal
Cliff issue, giving benchmarks a reason to kick off the New Year
with a strong rally. The bullish sentiment helped the S&P 500
register its biggest daily gain in more than a year. Meanwhile, a
couple of domestic reports were released. The ISM Manufacturing
index increased in December whereas construction spending
declined in November. All ten of the S&P 500 industry groups
rallied and the technology sector emerged as the biggest gainer.
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The Dow Jones Industrial Average (DJI) gained 2.4% to close the
day at 13,412.55. The Standard & Poor 500 (S&P 500)
surged 2.5% to finish yesterday's trading session at 1,462.42.
The tech-laden Nasdaq Composite Index jumped 3.1% to end at
3,112.26.The fear-gauge CBOE Volatility Index (VIX) plunged 18.5%
to settle at 14.68. Consolidated volumes on the New York Stock
Exchange, American Stock Exchange and Nasdaq were roughly 7.8
billion shares, significantly higher than the daily average of
6.42 billion shares. Advancing stocks easily outpaced decliners
on the NYSE; as for 86% stocks that rose, only 13% stocks moved
Benchmarks ended 2012 on a high note and carried on the momentum
into the New Year as the Fiscal Cliff crisis was finally
resolved. The blue-chip index posted its largest gain since
December 2011. The index is only 5% behind its record high close
recorded in October 2007. The bullish sentiment in markets also
pushed the VIX, the market's fear gauge to its lowest level since
October 2012. Despite recent declines due to the Cliff issue
benchmarks finished in the green for 2012.
Congress sealed a deal on the Fiscal Cliff issue late on Tuesday
night. Despite continuing tension between Republicans and
Democrats, an agreement has finally been reached. Individuals
earning more than $400,000 and couples earning above $450,000
annually will have to pay higher taxes. Lawmakers increased tax
rates for rich Americans but delayed spending cuts of $109
billion in military and domestic programs for two months.
President Barack Obama said: "A central promise of my campaign
for president was to change the tax code that was too skewed
towards the wealthy at the expense of working middle-class
Americans." "Tonight we've done that." President Obama flew back
to Hawaii to resume his holiday. According to marker experts it
will not be easy going for investors in the coming two months as
discussions over the debt ceiling will soon begin.
Investors have ignored a number of domestic reports in the recent
days as the Fiscal Cliff issue has completely dominated
proceedings. According to the Institute for Supply Management,
the ISM Manufacturing index increased 1.2% to 50.7 from a
November reading of 49.5. This was above consensus estimates of
50.3. According to the report, manufacturing activity has
increased for the third time in seven months. In December new
orders remained flat at 50.3 whereas the employment index surged
4.3% to 52.7. The production and inventories indexes were the
only decliners in December.
Meanwhile, construction spending decreased for the first time in
eight months in November. Construction spending decreased 0.3% to
a seasonally adjusted annual rate of $866.0 billion from the
revised October figure of $868.2 billion. This is contrary to
consensus estimates of an increase of 0.7%. Private construction
spending decreased 0.2% and was at a seasonally adjusted annual
rate of $589.8 billion from the revised October figure of $590.8
billion. Public construction spending also declined in November,
by 0.4% to a seasonally adjusted annual rate $276.2 billion,
lower than the revised October figure of $277.4 billion.
The technology sector emerged as the biggest gainer among the
S&P 500 industry groups and the Technology SPDR (XLK) gained
3.0%. Stocks such as Apple Inc. (NASDAQ:
), Hewlett-Packard Company (NYSE:
), Dell Inc. (NASDAQ:
), SanDisk Corporation (NASDAQ:
) and Microsoft Corporation (NASDAQ:
) jumped 3.2%, 5.4%, 5.3%, 2.9% and 3.4%, respectively.