Dow up 308 as tax deal cheers investors

The market opens the year higher for a record fifth straight time. Investors worldwide hail the fiscal cliff bill -- especially investors in dividend-paying stocks. Apple, US Steel and Facebook are among the top performers. Gold and oil move up.

By Charley Blaine Jan 2, 2013 3:31PM
© Image Source/PhotolibraryUpdated: 4:53 p.m. ET

Don't look now, but the stock market set a record on Wednesday. In the process of generating its biggest rally in more than a year, the major averages opened higher on the first day of the year for a record fifth year in a row.

The Dow Jones industrials ($INDU) closed up more than 300 points, and the major averages had their largest gains on an opening day of trading this century. The Standard & Poor's 500 Index ($INX) and the Nasdaq Composite Index ($COMPX) also enjoyed record-setting days.

The catalyst is obvious: Markets around the world heaved a big sigh of relief that Congress agreed to a deal that would keep Bush-era tax cuts in place for all but the most affluent. The bill raises the top tax rate for the most affluent Americans.

The Dow soared 308 points to 13,413. The S&P 500 added 36 points to 1,462. And the Nasdaq climbed 93 points to 3,112. The Nasdaq-100 Index ($NDX), which tracks the largest Nasdaq stocks, gained 86 points to 2,746. The point gains for the Dow, S&P 500 and Nasdaq were their biggest since Nov. 30, 2011, when they rose 490, 52 and 105 points, respectively. The percentage gains -- 2.35%, 2.54% and 3.07%, respectively -- were the best since 2009.
There is a risk, however, that the rally may be short-lived. A more contentious fight between Democrats and Republicans in Congress is ahead over raising the nation's debt ceiling and over spending cuts required under the 2011 budget deal.

"House Republicans can be humiliated for only so long," Greg Valliere of the Potomac Research Group wrote clients on Wednesday morning. "They're itching for fights where they have leverage." And they potentially have lots of leverage over the debt ceiling and spending.
The stock market's gains come after it ended higher on the first session of the year for the fifth straight time and after Monday's big rally as the outlines of the deal, forged by Vice President Joe Biden and Senate Minority Leader Mitch McConnell, began to take form.

One big reason for the rally was that tax rates on dividends were largely left alone.

If you're single earning $400,000 a year or more or married earning $450,000, you'll pay 20% on your dividend income. For everyone else, it's 15%. Stocks paying big dividends like AT&T (T), Verizon Communications (VZ) and Consolidated Edison (ED) jumped 2% or more as a result.

Still, the Dow, S&P 500 and Nasdaq still remain below their 2012 highs, set in September and early October. The S&P 500 is within 3 points of its post-crash high of 1,465.77, set Sept. 14.

The market had closed higher on four straight up opening days only twice: between 1973 and 1976 and between 2009 and 2012, according to Standard & Poor's Howard Silverblatt.

It is not uncommon, however, for the market to rise on the first trading day of the year. In fact, the market has moved higher on the first day of trading 10 times this century. Three of the four declines -- in 2000, 2001 and 2008 -- suggested difficult times were ahead.

All 30 Dow stocks were higher, led by Hewlett-Packard (HPQ), Caterpillar (CAT) and AT&T.

Energy stocks were the strongest sector of the S&P 500, where about 450 of its component stocks were higher. Also showing strength: semiconductors, steel, housing and airline stocks.

The S&P 500 leaders were U.S. Steel (X), Lam Research (LRCX) and LSI Logic (LSI). Also showing strength: MetLife (MET) and Viacom's Class B shares (VIAB).

Alexion Pharmaceuticals (ALXN) was the Nasdaq-100 leader, followed by Viacom, Regeneron Pharmaceuticals (REGN) and Wynn Resorts (WYNN). Facebook (FB), up $1.38  to $28, was higher on speculation its mobile advertising efforts will pay off.

Apple
(AAPL), which represents more than 17% of the market capitalization of the stocks in the index, was up $16.86 to $549.03. The shares are up 9.5% since hitting a near-term bottom of $501.23 on Dec. 17.

In addition, shares of Zipcar (ZIP), the car-sharing company, were up $3.94 to $12.18 after agreeing to sell out to Avis Budget Group (CAR) for $12.25 in cash per share, or about $500 million, a 49% increase from Monday's close. The downside of the deal: Zipcar went public in 2011 at $18 and jumped to as high as $31.25 on the first day of trading and never came close to hitting that price again. It bottomed at $5.90 on Nov. 7. 

European and Asian stocks also surged Wednesday, with stocks in Germany, the United Kingdom and France rising more than 2%. Hong Kong's Hang Seng Index jumped 655 points, or 2.9%, to 23,312.

The market rally pushed interest rates higher; the 10-year Treasury yield moved up to 1.832% from Monday's 1.756%.

Gold (-GC) settled up to $13 to $1,688.80 an ounce in New York. Crude oil (-CL) in New York settled at $93.12 a barrel, up $1.30. Brent crude in London was up $1.19 to $112.30.

There was OK news on manufacturing from the Institute for Supply Management. Residential construction spending also moved higher in November, the Commerce Department said, but construction spending overall fell for the first time since March because of a 5.5% decline in spending on federal construction projects.

But Chinese manufacturers enjoyed a strong end to the year with operating conditions improving at the fastest rate in 19 months, according to HSBC's latest Purchasing Managers' Index.

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119Comments
Jan 2, 2013 5:43PM
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Not sure why anyone would buy stocks. The market is rigged and once obamas handlers have things they way they want it the stock market will crash.  Our stock market has been propped up.  The fall is coming and so is the civil war.  Obama wants to take away are rights and the only ones who will let him are the city dwellers.  They will go down without a fight.  But the flyover states will succeed because we know how to fight and win.  And since most of the military comes from the flyover states you will see desertion in the ranks.  THe only hope this world has is for God to intervene.

Jan 2, 2013 5:41PM
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Here we go.......  Obama is continuing to destroy America and the American spirit.  He has made middle class income the "new-evil-rich" and soon, the high side to hate will be anyone with anything.

 

His wish will be that big government is the default for everything and everyone.  Looks like he's gonna get his way.

 

Pray for us all.

 

Raifsnider1

Jan 2, 2013 5:32PM
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Government created this fiscal cliff in the first place and some now think the government is saving their butts from it.  Much like an arsonist putting out his own fire and wanting to be called a hero. Nothing but whitewash for the gullible
Jan 2, 2013 5:23PM
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There is nothing to justify oil being over $93 a barrel in our current economy. This is Wall street Greed and Speculation at its best. That is why I say over and over again that Congress needs to revamp the way that oil futures are traded on Wall Street. Require these traders to take full physical delivery of all oil futures they buy ahead electronically or on paper and never see or have to deal with and then see how many they buy. Everything is in favor of Wall Street and it is time that the playing field in oil futures trading is leveled. If something is not done, this economy and country does not stand a chance of getting back to where it once was. Call your Reps and tell them it is high time that they addressed oil Speculation on Wall Street.
Jan 2, 2013 5:18PM
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Heard it said last week... "best to invest in hand baskets..."

 

Those 300 Dow points won't help America one bit. Making bigger wealthier platforms that won't and don't hire people is going to bite us really hard really soon. And then there's the war that follows.

Jan 2, 2013 5:12PM
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Quit whining and invest in your 401's while the market is hot.

Jan 2, 2013 4:53PM
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But what''s going to happen when the primary investors are bled dry?  No investing, no growth, no new ventures, and no jobs.
Jan 2, 2013 4:51PM
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Wait until the numbers come out for December....

Jan 2, 2013 4:50PM
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21 million people employed by federal and statel goverrnents.

63 million people living on government assistance.

109 million people employed by the private sector.

Do the math, 109 million people cant continue to support 84 million people. Our ecomomy will crash soon and this bill will do nothing to stop it.

Jan 2, 2013 4:41PM
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what goes up without merit will come down with equal speed
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Hmmm let's see we are putting about $1.8 trillion new debt on the Federal Goverment's tab every year into the foreseeable future.

 

The only thing that will stop the adding of about $2 trillion a year to the national debt will be when we cross over and start to add $3 trillion to the national debt.

 

The debt crisis in Europe and Japan look very very small when compared to the debt crisis in America.

 

So the tax increase is going to add what about $50 billion to the tax revenue a year

 

that is a joke it will not even keep up with inflated government debt next year.

 

Pretty much 1 to 3 years is all we have left in the US before our economy totally collapses and it will collapse soon and very quickly.

Jan 2, 2013 4:31PM
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Why was this God-awful bill that did nothing to cut out-of-control spending a good thing for the stock market?

This is terrible news, not good news.  Go ahead and buy stocks at your own risk.  I'll stick with my gold which has made me nearly $200,000 over the last few years.  And when our "Greece" occurs real soon, I'll double that.
Jan 2, 2013 4:31PM
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The market jump is just as stupid as the people who thing anything was accomplished by this deal!
Jan 2, 2013 4:18PM
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Where are all the crazies from last year? This thread is DEAD!

Jan 2, 2013 4:14PM
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The stock markets are a false positive for the US because the feds keep buying up bad bonds and mortgages. US holds bad stocks on GM which wants to buy them back why not the US will take a lose on them like everything else the government investees our money no profit Jus raise taxes to cover there incompetents. More Spending and what do we get more taxes so they can spend more.
Jan 2, 2013 4:10PM
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Why the hell is Oil rising? There seems to be no breaks in sight for the average American consumer. Fiscal Cliff BS is just that, BS cause workers pay checks will still decrease cause of a past amendment which will restore a 6% payroll tax so there goes more money from the average workers payroll and no salary increases are expected to offset, but business owners get tax break incentives and the workers payroll continues to decline further to poverty levels and stock investors and executive pays and bonuses continue to go higher. WHAT DAM RELIEF WILL WORKERS GET...NONE! Back to the Oil hell prices we all face. The price at the pump has risen almost 0.25 per gallon just under two weeks and it is continuing to rise with no real justification and the banks still will not loan you a dime even with perfect credit and corporations and the wealthy magical " Job Creators " have not added one stinking new job and the requirements to be re-hired with consumer reports and stringent background checks and credit reports have gotten worse instead of better which further limits the average person the ability to get a well paying job and if you want to get re-educated the cost of a course almost cost you the price of a home. So much BS just to survive. You can't even die as funeral cost are about 10,000 dollars. What a F ing crime this whole free democratic democracy has become and we want to chastise Russia for human right violations?
Jan 2, 2013 3:53PM
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The two political parties had better get a goal in mind economically, plan out the details and sell it to Joe six pack or they will inflate us away. Inflation is always in the background. Look at the price of commodities, Gold, Oil, and Corn. How are the poor going to survive when Uncle Sam defaults?  
Jan 2, 2013 3:42PM
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Hey look! The market is up big and Charlie is back.  Wonder if that's a coincidence?
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