Stocks Shoot Up as Investors Bet on 'Cliff' Deal

Traders work at the New York Stock ExchangeBy CHRISTINA REXRODE

NEW YORK (AP) - The stock market shot higher on Monday even as the "fiscal cliff" neared. By the time trading ended, Republicans and Democrats still hadn't reached a budget compromise -- but investors were betting that they would.

It was a dramatic day on what turned out to be a strong year for stocks. The Standard & Poor's 500 index rose 13.4 percent for the year, after finishing flat in 2011. It was the index's best year since 2009. The gains came despite a flare-up in Europe's debt crisis and anemic U.S. growth, bringing U.S. indexes close to their highs reached before the 2008 financial crisis.

The close Monday was a high note in what had been a choppy day for the market, as choppy as the "fiscal cliff" deal-making that has been yanking it around. It also marked a turnaround after five straight days of "cliff"-influenced losses. The Dow Jones industrial average and the Standard & Poor's 500 both climbed more than 1 percent. The Nasdaq composite index rose 2 percent.

Stocks fell at the opening of trading Monday and struggled for direction throughout the morning. The indecisiveness overlaid a day of dramatic budget negotiations in Washington, where lawmakers were trying to hammer out a new budget deal to avert the "fiscal cliff." That refers to automatic tax increases and government spending cuts that will kick in without a budget deal.

Stocks jerked higher at midday following reports that the bare outline of a deal to avoid the "cliff" had been knit together. The gains faded after President Barack Obama said in the early afternoon that a compromise was "within sight," but not finalized. Then, in the late afternoon, the indexes shot higher again. Congressional Republicans and the Democratic White House said they had agreed on some measures, but still had no final deal in hand.

At the close of trading, Dow Jones industrial average was up 166.03 points, finishing the year at 13,104.14. That's a gain of 7.3 percent for the year, its fourth straight year of gains.

The S&P 500 rose 23.76 to 1,426.19. The Nasdaq composite climbed 59.20 to 3,019.51. For the year the Nasdaq rose 15.9 percent.

With the "fiscal cliff" still closing in, investors' opinions about its potential impact varied, making its long-term effect on the market hard to guess.

Some investors are unruffled. They think that even if the U.S. does go over the "cliff," it would be more akin to the anti-climactic Y2K scare than a true Armageddon. The "cliff's" impact would be felt only gradually, they reason. For example, workers might get more taxes withheld from their first couple of paychecks in the new year, but it's not as if they'd have to pay all their higher taxes up front on Tuesday. And Congress could always retroactively repeal those higher taxes.

Others are more concerned. The higher taxes and lower government spending could take more than $600 billion out of the U.S. economy and send it back into recession. Investors would have no good read on the country's long-term policy for taxes and spending.

The psychological impact - the U.S. would essentially be broadcasting that its lawmakers can't compromise - would also hurt.

"We're having a fragile recovery, with the pain of 2008 still fresh on everybody's mind," said Joe Heider, principal at Rehmann Group outside Cleveland. "It's fear of the unknown. And fear is one of the greatest drivers of the financial markets."

Tim Speiss, partner in charge of the personal wealth advisers practice at EisnerAmper in New York, followed the "cliff" negotiations on Monday and wondered if the U.S. would get its debt rating cut again. The Standard & Poor's ratings agency cut its rating of the U.S. government amid similar negotiations in August 2011, when lawmakers were arguing over the government's borrowing limit. S&P said at the time that the "political brinksmanship" highlighted how "America's governance and policymaking (is) becoming less stable, less effective, and less predictable." Its rating cut sent the stock market into a tailspin.

The other major ratings agencies, Moody's and Fitch, have suggested that they might lower their ratings of the U.S. because of the "fiscal cliff."

"That is, unfortunately, the big story," Speiss said.

It's also one of the only stories. There's been little other news to trade on during the holiday season, giving the "fiscal cliff" drama outsized influence. No major companies are scheduled to report earnings this week. The most significant economic indicator scheduled for this week, the government's monthly jobs report, won't be released until Friday.

The yield on the benchmark 10-year Treasury note rose to 1.76 percent from 1.70 percent late Friday, a sign that investors were moving money into stocks.

Some of the best-performing stocks for the year were those that were making up for deep losses in 2011. Homebuilder PulteGroup (PHM) nearly tripled after falling for five of the previous six years. Appliance maker Whirlpool (WHR) and Bank of America (BAC) more than doubled over the year, after falling by double-digit percentages in 2011.

Some of the worst performers of 2012 were Best Buy (BBY), Hewlett-Packard (HPQ) and J.C. Penney (JCP). All are struggling to keep up with competitors who have adapted more quickly to changing technologies and customer tastes. They were all up for the day, but were all down at least 44 percent for the year.

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"Bet" is the correct word when playing on Wall Street (and Politics). At least you know what the odds are in Vegas and they can not be manipulated.

December 31 2012 at 9:40 PM Report abuse +1 rate up rate down Reply

What stupid ignoramouses! They may as well give their money to the Fed's to pay off the debt, if they really wan't to bet on a longshot!

December 31 2012 at 9:19 PM Report abuse rate up rate down Reply

Amazing given the fact that most companies will continue their plans of stagnation due to the sputtering economy. I would have thought the market would start to tank big about mid-day when it became more obvious the cliff was near.

December 31 2012 at 9:14 PM Report abuse -1 rate up rate down Reply

Come listen to a story about a man named Barack
A poor community organizer , barely kept his family fed,
Then one day he was digging in a dumpster for some food,
and then came the call from the from the democratic crew .

Well the first thing you know ol' Baracks a millionaire,
His kinfolk said, 'Barack, move away from there!'

They said, 'Washing D.C. is the place you oughtta be.'

So, they loaded up the truck and moved to
'Washing D.C. CapitalHills, that is, the White House Swimmin' pools, movie stars.

December 31 2012 at 6:42 PM Report abuse -1 rate up rate down Reply

Off the cliff we go and brand new fighters go as well, free of charge thanks to Uncle Sam..

In the spirit of the holiday season, even Santa Claus would have trouble sending a stocking full of American F-16 fighter jets to an Egyptian regime that supports Hamas and is looking more and more like a dictatorship than a trustworthy democracy. And yet, unbelievably, that is exactly what the United States government is doing. As recent reports show, the Administration is prepared to send a shipment of 20 brand-new fighter jets to the Egyptian Air Force by Jan. 22.

As America sinks deeper into debt, I ask this simple question: why are we sending billions of hard-earned American dollars (and planes) to a country that openly supports terrorists? It’s outrageous!

December 31 2012 at 5:28 PM Report abuse rate up rate down Reply

It's all a lie you know it's all bout profits.

December 31 2012 at 5:17 PM Report abuse rate up rate down Reply

Stocks Soar as 'Fiscal Cliff' Deal Appears More Likely and Michelle is starting to plan next years vacations.

First Lady accused of spending $10m in public money on her vacations

First Lady Michelle Obama said, "for the first time in my adult life I am proud of my country because it feels like hope is finally making a comeback."

Then in Madison, she said, "For the first time in my adult lifetime, I’m really proud of my country, and not just because Barack has done well, but because I think people are hungry for change."

The First Lady is believed to have taken 42 days of holiday in the past year, including a $375,000 break in Spain and a four-day ski trip to Vail, Colorado, where she spent $2,000 a night on a suite at the Sebastian hotel.

And the first family's nine-day stay in Martha's Vineyard is also proving costly, with rental of the Blue Heron Farm property alone costing an estimated $50,000 a week.

The source continued: 'Michelle also enjoys drinking expensive booze during her trips. She favours martinis with top-shelf vodka and has a taste for rich sparking wines.

'The vacations are totally Michelle's idea. She's like a junkie. She can't schedule enough getaways, and she lives from one to the next - all the while sticking it to hardworking Americans.'

December 31 2012 at 4:36 PM Report abuse rate up rate down Reply

Benjamin Franklin once proposed that elected officials not be paid for their service to the nation -- a proposal that was quickly struck down by other representatives.

However, it must be said that during the recent recession, members of Congress did conform somewhat to the idea of "austerity" and quietly declined their annual salary bump for the second year in a row.

Regardless, members of Congress have continued to see their wealth grow. Many saw their fortunes increase by millions of dollars. The combined minimum net worth of this year's 50 wealthiest lawmakers was $1.6 billion, over $200 million more than last year's (2010) group.

December 31 2012 at 4:31 PM Report abuse -1 rate up rate down Reply

thank the GOP and no one else

December 31 2012 at 3:21 PM Report abuse rate up rate down Reply
1 reply to lacabrera's comment

That it is up today ... yes

December 31 2012 at 3:53 PM Report abuse rate up rate down Reply
1 reply to rgmac12's comment

I wish I was able to get it up today.

December 31 2012 at 6:37 PM Report abuse rate up rate down
stock market

Up again. Down tomorrow, then day after, and after. Wait and see.

December 31 2012 at 3:11 PM Report abuse rate up rate down Reply