Dow soars 308 points after fiscal cliff deal
BY DAVID ROEDER Business Reporter firstname.lastname@example.org January 2, 2013 8:16AM
In this Monday, Dec. 31, 2012, photo, a trader works on the floor at the New York Stock Exchange in New York. World markets registered relief Wednesday Jan. 2, 2013 over the U.S. congressional vote to stop hundreds of billions of dollars in automatic tax increases and spending cuts that risked plunging the world's biggest economy into recession. (AP Photo/Seth Wenig)
Updated: February 4, 2013 2:40PM
Enjoy it while it lasts.
Wall Street behaved Wednesday as if were hitting the champagne left over from New Year’s Eve.
The major indexes rose more than 2 percent on the first trading day of 2013. Investors owed the enthusiasm to Congress’ approval Tuesday of a budget compromise that averted the worst hazards of the “fiscal cliff.”
It was a classic relief rally that could set up another common scenario, “second thoughts” nervousness over what the budget deal did not accomplish.
“Washington negotiations remind me of the Beach Boys song, ‘We’ll have fun, fun, fun ’til her daddy takes the T-Bird away,” said Jack Ablin, chief investment officer at BMO Private Bank. In an e-mail to clients, Ablin said of the fiscal cliff, “The most difficult decisions, including the ‘sequestration’ of automatic spending cuts amounting to more than $100 billion per year, were put off until the end of February. Now the debt ceiling debate will punctuate the headlines over the next two months.”
The Dow Jones industrial average jumped 308.41 points, 2.4 percent, to close at 13,412.55. The Standard & Poor’s 500 index rose 36.23 points, 2.5 percent, to 1,462.42. For the benchmark S&P 500, it was its best close since Sept. 14 and its biggest one-day improvement since Dec. 20, 2011.
The Nasdaq composite index rose 92.75, 3.1 percent, to 3,112.26.
Counting the market’s rally on New Year’s Eve in anticipation of a budget deal, the major indexes this week are up 3.7 percent to 5.1 percent.
The market’s so-called “fear index” measured the mood with typical precision. The Chicago Board Options Exchange Volatility Index, or VIX, was down 18.5 percent to 14.68 by the close and has fallen 35.4 percent over the past two sessions. That is its biggest two-day decline ever.
But there were ample warnings amid the glee. Moody’s Investors Service said the fiscal cliff measure clarifies “the medium-term deficit and debt trajectory of the federal government” but doesn’t go far enough.
Further measures to curtail spending are needed before Moody’s can upgrade the negative outlook it has applied to U.S. government debt, the ratings agency said. Moody’s rating of Aaa on federal debt is still the best on its scale.
Moody’s said that revenue growth from higher taxes approved for individuals making more than $400,000 a year, or joint filers making more than $450,000, is swamped by the costs for extending tax breaks for those with lower incomes.
The prospect of federal spending cuts that could shave growth from the economy was a concern for another day. Wednesday’s rally was broad, with all 10 sectors in the S&P 500 moving higher. On the New York Exchange, 10 stocks rose for every one that fell.
The yield on the 10-year Treasury note rose sharply, to 1.84 percent from 1.75 percent. Prices for oil and key metals were up. The price of copper, which can be a gauge of how investors feel about manufacturing, rose 2.3 percent.
Among stocks making big moves, Zipcar shot up 48 percent, rising $3.94 to $12.18, after the company said it would sell itself to Avis. Avis rose 95 cents to $20.77, or 5 percent.