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Investor sentiment was boosted by signs of progress in the Fiscal Cliff negotiations, driving the benchmarks higher on Monday. The blue-chip index ended its three-day losing streak and posted its biggest gain this month. The S&P 500 logged its best day since November 23. Financials and housing were the top two gainers among the S&P 500 industry groups.

The Dow Jones Industrial Average (DJI) gained 0.8% to close the day at 13,235.39. The Standard & Poor 500 (S&P 500) jumped 1.2% to finish yesterday’s trading session at 1,430.36. The tech-laden Nasdaq Composite Index surged 1.4% to end at 3,010.60. The fear-gauge CBOE Volatility Index (VIX) dropped 3.9% to settle at 16.34. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.2 billion shares, slightly lower than the daily average of 6.4 billion shares. Advancing stocks easily outpaced decliners on the NYSE; as for 65% stocks that rose, only 32% stocks moved lower.

Benchmarks opened higher on Monday after encouraging developments related to the Fiscal Cliff. President Barack Obama and House of Representatives Speaker John Boehner met for the third time in five days. Reportedly, both the parties moved closer to finding a solution to the impending $600 billion in spending cuts and tax increase.
 
John Boehner proposed to raise $1 trillion as tax revenue in a decade. The proposal also states that people earning $1 million per year will have to pay 39.6% of their tax as opposed to the current 35%. Earlier Boehner was placing more emphasis on spending cuts and was not interested in tax increases which President Obama was pressing for. But now Boehner has agreed on increasing tax rates for rich Americans. Fiscal Cliff is slated to take effect from the beginning of 2013 if Congress fails to reach a deal to avert it.

The Street received encouraging domestic and international economic reports in the previous week, but investors chose to ignore those data. This was because they are more focused on developments regarding the Fiscal Cliff issue. Last week, the U.S. Department of Labor reported that initial claims dropped to its lowest level since February 2008. Retail sales increased in November according to the U.S. Census Bureau.    

Separately, the Federal Reserve Bank of New York reported that manufacturing activity continued to decline at a modest pace. According to the report, the general business conditions index declined to -8.1 in December, beating consensus estimates of 2.57. The general business condition index had fallen for the fifth consecutive month. New orders declined to -3.7, while the shipment index dropped to 8.8.     
   
The housing sector enjoyed a decent run yesterday after the National Association for Business Economics indicated that the U.S economy will grow modestly in 2013, boosted by increasing demand for housing. The SPDR S&P Homebuilders (XHB) gained 2.9% and was the biggest gainer among the S&P 500 industry groups. Stocks such as Toll Brothers Inc (NYSE:TOL), PulteGroup, Inc. (NYSE:PHM), KB Home (NYSE:KBH), The Ryland Group, Inc. (NYSE:RYL) and Lennar Corporation (NYSE:LEN) jumped 4.4%, 5.3%, 5.2%, 6.7% and 4.0%, respectively.

The Financial Select Sector SPDR (XLF) surged 2.0%. Stocks such as JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Company (NYSE:WFC), Goldman Sachs Group, Inc. (NYSE:GS), PNC Financial Services (NYSE:PNC) and Citigroup Inc. (NYSE:C) gained 1.6%, 3.7%, 3.5%, 3.6% and 4.1%, respectively.
 

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