December 17, 2018

Big Gains on Wall Street After the Fiscal Deal

Wall Street cheered an agreement that ended the fiscal impasse in Washington, sending the Standard Poor’s 500 to its biggest gains in more than a year on Wednesday.

After being restrained for much of the last three months by the political squabbling over an array of tax increases and spending cuts known as the fiscal cliff, investors demonstrated their new willingness to take risks in a broad array of financial markets around the world.

Shares in more speculative investments rose much faster than blue chips, sending the Russell 2000 index of smaller companies up 2.8 percent to 873.42, its highest level ever. The benchmark S. P. 500-stock index rose 2.5 percent, or 36.23 points, to 1,462.42. One more day of the same magnitude will bring the index to its highest level since the 2008 financial crisis.

“You’ve just removed a huge worry from the market,” said Jonathan Lewis, the chief investment officer at Samson Capital Advisors. “We’ve been in a never-never land where markets have not been able to take their attention off Washington.”

Congress signed off on the deal late Tuesday night, and it immediately sent stocks soaring first in Asia and then in Europe. Leading indexes rose 2.6 percent in France, 2.2 percent in Germany and 2.9 percent in Hong Kong. Markets in Japan and mainland China were closed for holidays.

The Dow Jones industrial average rose 2.4 percent, or 308.41 points, to 13,412.55. The Nasdaq composite index increased by 3.1 percent, or 92.75 points, to 3,112.26.

Only 31 stocks in the S. P. 500 dropped on Wednesday. Technology and financial stocks did particularly well, as did stocks that offer generous dividends. The agreement on Tuesday raised the tax rate on dividends to 20 percent from 15 percent, less than President Obama had proposed.

In the United States, share prices gained most in the first 30 minutes of the day and then plateaued before a brief spike just before trading closed.

Many market strategists were worried that Wednesday’s rally would not last long because of the questions that were not addressed by the fiscal accord. While the deal provides a long-term settlement on tax rates, it delayed for only two months $110 billion of spending cuts that were supposed to start on Jan. 1. Congress also put off a decision about limits on government borrowing, known as the debt ceiling.

The Treasury Department has said that the government hit the ceiling at the end of 2012 and it will be able to finance the budget only by using extraordinary measures until March. Republican leaders in the House of Representatives have said they will raise the borrowing limit only if Democrats agree to more spending cuts.

That debate may well be more fractious than what has taken place in recent weeks, analysts said.

Leon LeBrecque, the founder of the asset management firm LJPR, said that Wednesday’s rally would not last long as investors turned their attention to the unanswered questions.

“We’re in a three-act play, but we’re only through with Act 1,” said Mr. LeBrecque. “Everyone is happy about the first act. The real question is what happens next.”

The last time the government reached its borrowing limit, in 2011, Congress approved an increase at the last minute. This led Standard Poor’s ratings services to strip the United States of its triple-A credit rating. There is widespread concern that one of the other two major credit ratings agencies will lower their rating of American government debt in the coming months.

On Wednesday, Moody’s Investors Service said that the fiscal pact did not help the nation’s debt and deficit problems and “will likely be a constraint on growth in coming quarters.” It said the looming negotiations over spending cuts and lifting the debt ceiling add “uncertainty to the outcome of negotiations.”

“The debt trajectory resulting from this process is likely to determine whether the Aaa rating is returned to a stable outlook or downgraded” by one notch to Aa1, the Moody’s report said.

But there is hope in some quarters of Wall Street that with each new crisis, and each last-minute fix, the risks to the markets grow less severe as investors become convinced that politicians eventually find solutions to their disagreements. Michael Purves, the chief global strategist for Weeden Company, compared the debates in Washington to horror movies: “Once you see the first movie, the sequels are never as scary.”

He said that at least for the near term, the resolution in Washington should allow investors to focus on the growing signs of improvements in the American economy.

The Institute for Supply Management said on Wednesday that manufacturing in the United States expanded slightly in December. Its manufacturing activity index rose to 50.7 points in December, up from 49.5 in November. Even more important data will come on Friday, when the monthly jobs report is released.

In the bond market, investors sold off the longer-dated Treasuries that have been used as safe havens in recent years. The price of the Treasury’s 10-year note fell 22/32, to 98 4/32, while its yield rose to 1.84 percent, from 1.76 percent late Monday.

This article has been revised to reflect the following correction:

Correction: January 2, 2013

An earlier version of this article misstated the surname of the chief investment officer at Samson Capital Advisors. He is Jonathan Lewis, not Jonathan Samson.

Article source: http://www.nytimes.com/2013/01/03/business/daily-stock-market-activity.html?partner=rss&emc=rss

Stocks Jump 2.5% on Fiscal Deal

The benchmark Standard Poor’s 500 index finished Wednesday up 2.5 percent. The technology-heavy Nasdaq composite index was up even more strongly, rising 3.1 percent. The Dow Jones industrial average rose 2.4 percent, or about 308 points.

The major indexes ended the day within striking distance of the highs they reached before the election.

The drama over the fiscal impasse ended when a sufficient number of Republicans in the House joined Democrats to back a deal the Senate had reached earlier. The deal modestly raises income taxes on the highest-earning Americans, ends payroll tax cuts and creates permanent tax cuts for others.

“You’ve just removed a huge worry from the market,” said Jonathan Samson, the chief investment officer at Samson Capital Advisors.

Congress signed off on the deal late Tuesday night and it immediately sent stocks soaring first in Asia and then in Europe. Leading indexes rose 2.6 percent in France, 2.2 percent in Germany and 2.9 percent in Hong Kong. Markets in Japan and mainland China were closed for holidays.

In the United States, share prices experienced most of their increases in the first 30 minutes of the day and then plateaued for most of the rest of the day. In the bond market, investors sold off the longer-dated Treasuries that have been used as safe havens in recent years, pushing up the yield on the benchmark 10-year bond to 1.839 percent.

Many market strategists were already shifting their attention to the political sticking points that were not handled in this week’s agreement. Congress decided to defer for two months $110 billion of government budget cuts that were supposed to begin on Tuesday. Those cuts will have to be dealt with around the same time the government hits the so-called debt ceiling, beyond which it may not be able to borrow more money in the bond markets.

“There’s a recognition that this isn’t the end of the game,” said Jack Malvey, the chief market strategist at BNY Mellon.

In economic reports, the Institute for Supply Management said manufacturing in the United States expanded slightly in December. Its manufacturing activity index rose to 50.7 points in December, up from 49.5 in November.

In Europe, manufacturing activity remained in the doldrums. Surveys of purchasing managers by Markit Economics showed euro zone factories ended 2012 in poor shape, with both production and new orders declining in December. German factories posted declines in both output and new orders, according to the Markit data, while the Spanish manufacturing shrank a 20th consecutive month, with both the decline and the pace of job cuts accelerating.

Article source: http://www.nytimes.com/2013/01/03/business/global/03iht-asiamarkets03.html?partner=rss&emc=rss