Traders hung on every word out of Washington on Monday, sending share prices on a jerky path upward on what is usually a quiet day of trading ahead of the New Year’s Day holiday.
It ended up being the best day for American stocks since the middle of November and was enough to push leading indexes into positive territory for December. The Standard Poor’s 500-stock index finished the day up 1.7 percent, bringing the year’s gains to 13.4 percent. The Dow Jones industrial average was up 1.3 percent for the day and 7.3 percent for 2012.
The government was expected to go over the so-called fiscal cliff on Monday night, when a package of tax increases and spending cuts was set to start being phased in. But the political signals out of Washington convinced many investors that the White House and Congress would avert the changes that would be most damaging to the economy. “By day’s end, the assumption was that a deal was in hand — minor details needed to be worked out, but a finished product would be in the books within the next few days,” said Daniel Greenhaus, chief global strategist at BTIG. “Investors that had spent the last couple of days trading down reversed that trend and took things higher.”
The market’s jump, much of which occurred after an early-afternoon news conference by President Obama, brought an unexpected end to a day that began with continuing bickering in Washington and a sense of foreboding on Wall Street. American stocks had fallen steadily for most of the last week and opened the day trading down.
Senator Mitch McConnell of Kentucky, the leader of the Republican minority, said late in the day that an agreement was “very, very close.”
Stocks could easily lose their gains if either chamber of Congress is unable to pass the compromise that was being negotiated on Monday. Senators said they were hoping to agree upon legislation and pass it along to the House for a vote on Tuesday. Some details of the agreement were still unclear, and the Republican-controlled House could demand changes.
The stock markets are closed on Tuesday, and most traders will be back at their desk Wednesday morning after a week of vacations and light trading.
Even if there is an agreement, it is unlikely to resolve a separate debate over the limit on the amount the government can borrow. The government hit its self-imposed debt ceiling on Monday, and Treasury Department officials have said they will be able to finance the budget for only a few weeks using emergency measures.
Some Republicans have said they want to use the debate over the debt ceiling to extract more spending cuts from Democrats. Investors are preparing for another bout of volatile trading if that happens.
The year did end with many market strategists in an optimistic mood about the American economy, once the fiscal negotiations in Washington are out of the way.
“While fiscal policy and political gridlock are negatives, there are other factors that remain supportive of growth, including a modest recovery in housing and further improvements in household balance sheets,” BlackRock’s chief investment strategist, Russ Koesterich, said in a note to clients.
The Standard Poor’s 500 index climbed 1.7 percent, or 23.76 points to 1,426.19. The Dow Jones industrial average was up 1.3 percent, or 166.03 points to 13,104.14. The Nasdaq composite index rose 2 percent, or 59.20 points, to 3,019.51.
Article source: http://www.nytimes.com/2013/01/01/business/daily-stock-market-activity.html?partner=rss&emc=rss
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