Wall Street ends 2012 riding high on "cliff" deal optimism

NEW YORK Tue Jan 1, 2013 7:57pm IST

Traders work the floor at the New York Stock Exchange in New York, December 26, 2012. REUTERS/Eduardo Munoz

Traders work the floor at the New York Stock Exchange in New York, December 26, 2012.

Credit: Reuters/Eduardo Munoz

Related Video

Stocks

   

NEW YORK (Reuters) - U.S. stocks closed out 2012 with their strongest day in more than a month, putting the S&P 500 up 13.4 percent for the year, as lawmakers in Washington closed in on a resolution to the "fiscal cliff" negotiations.

The S&P 500's gain for the year marks its best performance since 2009, as stocks navigated through debt crises in Europe and the United States that dominated the headlines. Still, with numerous issues involving budget talks unresolved, markets could still be open to a shock should the deal break down unexpectedly.

Fittingly, in the last session of the year, stocks bounced back and forth on the headlines out of Washington, as both President Barack Obama and Republican Senate leader Mitch McConnell issued statements indicating a deal to avert the cliff was close.

"The worst news could have been the president coming out and saying, 'We don't have a deal and we've giving up,' and he didn't say that," said Ron Florance, managing director of investment strategy for Wells Fargo Private Bank, based in Scottsdale, Arizona.

"My personal skepticism, I don't trust anything out of Washington until it is signed, sealed and delivered, and it is not signed, sealed and delivered."

While a deal on the cliff is not yet official, investors may be ready to take on more risk next year in hopes of a greater reward.

McConnell said an agreement had been reached with Democrats on all of the tax issues in the potential deal, removing a large hurdle in the talks. An agreement is needed in order to avert a combination of tax hikes and spending cuts that many believe could push the U.S. economy into recession.

A source familiar with the matter said an emerging deal, if adopted by Congress and President Barack Obama, would raise $600 billion in revenue over the next 10 years by increasing tax rates for individuals making more than $400,000 and households earning above $450,000 annually.

Despite the uncertainty, the market encountered only occasional bouts of volatility this year. For the first time since 2006, the CBOE Volatility Index or VIX .VIX, the market's favored indicator of anxiety, did not surpass the 30 level, a threshold that usually signals heightened worry among investors.

"Given all the threats in 2012, the VIX was relatively tranquil," said Bill Luby, the author of the VIX and More blog in San Francisco, citing the crises in Spain and Greece, along with constant intervention from the Federal Reserve.

The Dow Jones industrial average .DJI gained 166.03 points, or 1.28 percent, to end at 13,104.14. The Standard & Poor's 500 Index .SPX gained 23.76 points, or 1.69 percent, to finish at 1,426.19. The Nasdaq Composite Index .IXIC gained 59.20 points, or 2.00 percent, to close at 3,019.51.

Monday's gains enabled the S&P 500 to snap a five-day losing streak, its longest skid since September.

The S&P 500 closed out 2012 with a 13.4 percent gain for the year, compared with a flat performance in 2011. The Dow rose 7.3 percent in 2012 and the Nasdaq climbed 15.9 percent.

Financials .GSPF were the strongest of the S&P's 10 industry sectors this year, gaining more than 26 percent, led by Bank of America (BAC.N), which more than doubled in 2012, and was the best performer of the Dow industrials.

Of the S&P's 10 sectors, only defensively oriented utilities .GSPU ended the year lower, falling 2.9 percent.

Gains in Apple Inc (AAPL.O), the most valuable U.S. company, helped lift the Nasdaq. The stock rose 4.4 percent to $532.17, lifting the S&P information technology sector index .GSPT up 2.2 percent. For the year, Apple rose 31.4 percent, ending with a market value of about $501.4 billion.

Each of the Dow's 30 components finished the session in positive territory, led by a 3.2 percent climb in Caterpillar Inc (CAT.N) to $89.58.

Volume was modest, with about 6.06 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, slightly below the daily average of 6.42 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 6 to 1, while on the Nasdaq, four stocks rose for every one that fell.

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Election 2014

REUTERS SHOWCASE

TCS Results

TCS Results

TCS net profit rises 51.5 percent, sees stronger sales growth.  Full Article | Quote 

Election 2014

Election 2014

Promises and more promises: India’s parties pitch their visions.  Full Article | Full Coverage 

India Markets

India Markets

Sensex slumps 207 points, at 2-1/2 week closing low.  Full Article 

Telecom Sector

Telecom Sector

RComm to raise mobile call tariff by up to 20 percent  Full Article 

Chinese Economy

Chinese Economy

China economic growth slows to 18-month low in first quarter  Full Article 

New Direction

New Direction

CEO Nadella pushes data culture at Microsoft.  Full Article 

Bitcoin ATM

Bitcoin ATM

China gets first bitcoin ATM, skirting bank crackdown.  Full Article 

Strong Sales Volume

Strong Sales Volume

Small is beautiful for Coca-Cola as volumes soar in China  Full Article 

Breakingviews

Breakingviews

Diageo throws money at Indian empire-building  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage