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Investor optimism about a timely solution to the Fiscal Cliff dilemma coupled with expectations of new Treasury bond purchases pushed the benchmarks higher. The Federal Reserve started its two-day policy meeting on Tuesday, at the end of which a new round of bond purchases is likely to be announced. While the Dow and the S&P 500 finished higher for the fifth consecutive day, it was also the S&P 500’s best day this month. All ten of the S&P 500 industry groups finished in the green and technology emerged as the biggest gainer.

The Dow Jones Industrial Average (DJI) gained 0.6% to close the day at 13,248.44. The Standard & Poor 500 (S&P 500) rose 0.7% to finish yesterday’s trading session at 1,427.84. The tech-laden Nasdaq Composite Index jumped 1.2% to end at 3,022.30. The fear-gauge CBOE Volatility Index (VIX) tumbled 3.0% to settle at 15.57. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.43 billion shares, slightly lower than the daily average of 6.5 billion shares. Advancing stocks easily outpaced decliners on the NYSE; as for 66% stocks that rose, only 31% stocks moved lower.

Benchmarks began yesterday’s trading session on a positive note banking on hopes that Congress will strike a deal on time about the Fiscal Cliff issue. In the early part of trading, the blue-chip index had gained as much as 137 points. However, some of those gains were eroded after U.S. Senate Majority Leader Harry Reid’s discouraging comments on the issue.

President Barack Obama and House of Representatives Speaker John Boehner had a telephonic conversation about the Fiscal Cliff. According to White House and Congressional aides, President Obama sent a revised offer and Boehner also reciprocated with a counter proposal on Tuesday. However, none of the two shared any details about the proposal. Boehner said: “We're still waiting for the White House to identify what spending cuts the president is willing to make as part of the balanced approach that he promised the American people.”

However, U.S. Senate Majority Leader Harry Reid said it will be very difficult for Congress to strike a deal before Christmas. The $600 billion in tax increases and spending cuts will take effect from the beginning of 2013 if Congress fails to strike a deal. According to experts, if this takes effect then it will push the economy back into recession.
   
Meanwhile, the Federal Reserve began its two-day meeting on Tuesday. Under the ongoing program called “Operation Twist”, the Fed has been buying $45 billion in long-term bonds, while selling the same amount in short term debt in another bid to decrease the rates. Investors are expecting that the central bank will announce a new round of bond buying to replace “Operation Twist”, which will expire at the end of the year.

The October trade deficit moved up to $42.2 billion from the revised September figure of $40.3 billion. This was below consensus estimates of $42.6 billion. According to the U.S. Census Bureau and the U.S. Bureau of Economic Analysis, October exports were recorded $6.8 billion less than September exports of $187.3 billion. October imports decreased $4.9 billion from September imports of $227.6 billion.

The technology sector enjoyed a good run for the second consecutive day. The Technology SPDR (XLK) gained 1.3% and was the biggest gainer among the S&P 500 industry groups. Stocks such as Apple Inc. (NASDAQ:AAPL), Hewlett-Packard Company (NYSE:HPQ), Dell Inc. (NASDAQ:DELL), Microsoft Corporation (NASDAQ:MSFT) and Google Inc (NASDAQ:GOOG) surged 2.2%, 0.7%, 0.4%, 1.4% and 1.7%, respectively.
 

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