Lawmakers managed to seal a last-minute deal on the Fiscal Cliff issue, giving benchmarks a reason to kick off the New Year with a strong rally. The bullish sentiment helped the S&P 500 register its biggest daily gain in more than a year. Meanwhile, a couple of domestic reports were released. The ISM Manufacturing index increased in December whereas construction spending declined in November. All ten of the S&P 500 industry groups rallied and the technology sector emerged as the biggest gainer.
The Dow Jones Industrial Average (DJI) gained 2.4% to close the day at 13,412.55. The Standard & Poor 500 (S&P 500) surged 2.5% to finish yesterday’s trading session at 1,462.42. The tech-laden Nasdaq Composite Index jumped 3.1% to end at 3,112.26.The fear-gauge CBOE Volatility Index (VIX) plunged 18.5% to settle at 14.68. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 7.8 billion shares, significantly higher than the daily average of 6.42 billion shares. Advancing stocks easily outpaced decliners on the NYSE; as for 86% stocks that rose, only 13% stocks moved lower.
Benchmarks ended 2012 on a high note and carried on the momentum into the New Year as the Fiscal Cliff crisis was finally resolved. The blue-chip index posted its largest gain since December 2011. The index is only 5% behind its record high close recorded in October 2007. The bullish sentiment in markets also pushed the VIX, the market’s fear gauge to its lowest level since October 2012. Despite recent declines due to the Cliff issue benchmarks finished in the green for 2012.
Congress sealed a deal on the Fiscal Cliff issue late on Tuesday night. Despite continuing tension between Republicans and Democrats, an agreement has finally been reached. Individuals earning more than $400,000 and couples earning above $450,000 annually will have to pay higher taxes. Lawmakers increased tax rates for rich Americans but delayed spending cuts of $109 billion in military and domestic programs for two months.
President Barack Obama said: “A central promise of my campaign for president was to change the tax code that was too skewed towards the wealthy at the expense of working middle-class Americans.” “Tonight we've done that.” President Obama flew back to Hawaii to resume his holiday. According to marker experts it will not be easy going for investors in the coming two months as discussions over the debt ceiling will soon begin.
Investors have ignored a number of domestic reports in the recent days as the Fiscal Cliff issue has completely dominated proceedings. According to the Institute for Supply Management, the ISM Manufacturing index increased 1.2% to 50.7 from a November reading of 49.5. This was above consensus estimates of 50.3. According to the report, manufacturing activity has increased for the third time in seven months. In December new orders remained flat at 50.3 whereas the employment index surged 4.3% to 52.7. The production and inventories indexes were the only decliners in December.
Meanwhile, construction spending decreased for the first time in eight months in November. Construction spending decreased 0.3% to a seasonally adjusted annual rate of $866.0 billion from the revised October figure of $868.2 billion. This is contrary to consensus estimates of an increase of 0.7%. Private construction spending decreased 0.2% and was at a seasonally adjusted annual rate of $589.8 billion from the revised October figure of $590.8 billion. Public construction spending also declined in November, by 0.4% to a seasonally adjusted annual rate $276.2 billion, lower than the revised October figure of $277.4 billion.
The technology sector emerged as the biggest gainer among the S&P 500 industry groups and the Technology SPDR (XLK) gained 3.0%. Stocks such as Apple Inc. (NASDAQ:AAPL), Hewlett-Packard Company (NYSE:HPQ), Dell Inc. (NASDAQ:DELL), SanDisk Corporation (NASDAQ:SNDK) and Microsoft Corporation (NASDAQ:MSFT) jumped 3.2%, 5.4%, 5.3%, 2.9% and 3.4%, respectively.