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Benchmarks ended 2012 on a high note as U.S lawmakers were very close to sealing a deal on the Fiscal Cliff issue. Stocks moved higher after Senate minority leader Mitch McConnell and President Barack Obama made encouraging comments on the issue. The S&P 500 logged its best last day rally of the year since 1974. Despite recent declines, benchmarks finished in the green for the year. The housing sector was the biggest gainer among the S&P 500 industry groups.
The Dow Jones Industrial Average (DJI) gained 1.3% to close the day at 13,104.14. The Standard & Poor 500 (S&P 500) surged 1.7% to finish Monday’s trading session at 1,426.19. The tech-laden Nasdaq Composite Index added 2.0% to end at 3,019.51.The fear-gauge CBOE Volatility Index (VIX) plunged 20.7% to settle at 18.02. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.06 billion shares, lower than the daily average of 6.42 billion shares. Advancing stocks easily outpaced decliners on the NYSE; as for 81% stocks that rose, only 18% stocks moved lower.
Markets finally ended their five-day losing streak and finished in the green. Benchmarks were oscillating between small gains and losses in the morning as investors awaited developments on the Fiscal Cliff issue. But markets moved higher in the final hour of the trading after news circulated that U.S lawmakers are close to sealing a deal on the Fiscal Cliff issue. In recent days the Fiscal Cliff issue has completely dominated markets and benchmarks were moving on either side depending upon the developments related to the issue.
President Barack Obama said Congress is close to sealing a deal on the Fiscal Cliff issue without increasing tax rates for middle-class. Senate Minority Leader Mitch McConnell also said lawmakers are “very, very close,” to sealing a deal on the Fiscal Cliff issue. But the House of Representatives did not plan to vote on the federal budget before January 1. However, Congress can prevent the adverse effects of the Fiscal Cliff through a retroactive vote right at the start of 2013
According to a source familiar with the issue, if Congress and President Barack Obama give a green signal to the new plan, it will raise $600 billion in revenue over the next decade. Additionally, individuals earnings above $400,000 and households earning more than $450,000 annually will have to pay higher taxes.
Despite a recent fall due to the Fiscal Cliff, benchmarks ended 2012 on a high note. The Dow Jones gained 7.3%, the S&P 500 surged 13.4% and Nasdaq added 15.9% in 2012. This is the S&P 500’s best yearly gain in three years. The most important factors that pushed the benchmarks higher in 2012 are the recovery in the U.S. housing sector and relatively better employment conditions. The Federal Reserve’s announcement of QE3 in September has also helped benchmarks move higher. The financial sector gained 26.3% in 2012 and was the biggest gainer among the S&P 500 industry groups whereas the utilities sector was the sole loser. The utilities sector lost 2.9% in 2012.
On the international front, the Street received positive economic data from China. According to HSBC, China’s Purchasing Manger Index increased to 51.5 in December from 50.5 in November. The index has reached its highest level since May 2011. According to Qu Hongbin, chief China economist at HSBC in Hong Kong: “Momentum is likely to be sustained in the coming months when infrastructure construction runs into full speed and property market conditions stabilize.”
The housing sector was the biggest gainer among the S&P 500 industry groups and the SPDR S&P Homebuilders (XHB) gained 2.7%. Stocks such as The Home Depot, Inc. (NYSE:HD), Lowe's Companies, Inc. (NYSE:LOW), PulteGroup, Inc. (NYSE:PHM), M.D.C. Holdings, Inc. (NYSE:MDC) and D.R. Horton, Inc. (NYSE:DHI) jumped 2.0%, 1.5%, 3.2%, 4.1% and 2.8%, respectively.