Stocks started 2013 the same way they ended 2012 – with a monster rally. And they can thank Monday’s 11th-hour fiscal cliff deal for the much-needed boost.
All three U.S. indices climbed more than 2% today. The Nasdaq made the biggest move, rising more than 3%. The S&P 500 shot up 2.5%, while the Dow gained 2.35% – a whopping 308 points.
It was the best day for stocks since December 2011. Not a bad way to start off the New Year.
This two-day mini rally started about mid-day on New Year’s Eve, when news began to leak that Congress was close to reaching a fiscal cliff deal. Now that the deal has passed both the House and Senate, the added certainty of avoiding the cliff pushed stocks up even further than they surged on Monday.
Amazingly, the last two days of big gains was all it took for stocks to recover their end-of-year losses. After falling 2.8% from December 20-30 as the fiscal cliff deadline drew near, the S&P is suddenly at its highest level since mid-September. Meanwhile, the Nasdaq has reached a three-month high.
Does this sharp turnaround mean that the good times will continue to roll? Will investors be singing “Ding, Dong the Fiscal Cliff is Gone” for months to come?
That seems unlikely. This two-day binge is a collective sigh of relief among investors who had been holding their breath during the last few weeks of Congressional procrastination. We probably won’t see too many more 2.5% to 3% one-day gains in the coming weeks – not with the country on the brink of yet another debt ceiling.
But with a promising fourth-quarter earnings season on the horizon and fears of a double-dip recession momentarily quelled, we could see another fast start to the year like we saw in 2012.