Valdosta Daily Times

Local News

January 3, 2013

Stocks soar on budget deal, but problems lurk

NEW YORK — The “fiscal cliff” compromise, even with all its chaos, controversy and unresolved questions, was enough to ignite the stock market on Wednesday, the first trading day of the new year.

The Dow Jones industrial average careened more than 300 points higher, its biggest gain since December 2011. It’s now just 5 percent below its record high close reached in October 2007. The Russell 2000, an index that tracks smaller companies, shot up to the highest close in its history.

The reverie multiplied across the globe, with stock indexes throughout Europe and Asia leaping higher. A leading British index, the FTSE 100, closed above 6,000 for the first time since July 2011.

In the U.S., the rally was extraordinarily broad. For every stock that fell on the New York Stock Exchange, roughly 10 rose. Technology stocks rose the most. U.S. government bond prices fell sharply as investors pulled money out of safe-harbor investments. And the VIX, an index that measures investors’ expectations of future market volatility, plunged more than 18 percent to 14.68, the lowest close since October.

The very last week of each year and the first two days of the new year usually average out to a gain for U.S. stocks. But this year stood out. From 2008 to 2012, the Dow rose an average of 93 points on the first trading day of the year, less than a third of Wednesday’s gain of 308.41. During that period the Dow fell on the first trading day of the year only once, in 2008.

Despite the euphoria, many investors remained cautious. The deal that politicians hammered out merely postpones the country’s budget reckoning, they said, rather than averting it.

“Washington negotiations remind me of the Beach Boys song, ‘We’ll have fun, fun, fun ‘til her daddy takes the T-Bird away,” Jack Ablin, chief investment officer of BMO Private Bank in Chicago, wrote in a note to clients.

“Nothing got solved,” added T. Doug Dale, chief investment officer for Security Ballew Wealth Management in Jackson, Miss.

According to these and other market watchers, investors were celebrating Wednesday not because they love the budget deal that was cobbled together, but because they were grateful there was any deal at all.

“Most people think that no deal would have been worse than a bad deal,” said Mark Lehmann, president of JMP Securities in San Francisco.

The House passed the budget bill late Tuesday night, a contentious exercise because many Republicans had wanted a deal that did more to cut government spending. The Senate had already approved the bill.

The late-night haggling was a product of lawmakers wanting to avert a sweeping set of government spending cuts and tax increases that kicked in Tuesday, the start of the new year, because there was no budget deal ready. The scenario came to be known as the fiscal cliff, because of the threat it posed to the fragile U.S. economic recovery.

The bill passed Tuesday night ended the stalemate for now, but it leaves many questions unanswered.

The deal doesn’t include any significant deficit-cutting agreement, meaning the country still doesn’t have a long-term plan or even an agreement in principle on how to rein in spending. Big cuts to defense and domestic programs, which were slated to kick in with the new year, weren’t worked out but instead were just delayed for two months. And the U.S. is still bumping up against its borrowing limit, or “debt ceiling.”

“There’s definitely another drama coming down the road,” said Lehmann. “That’s the March cliff.”

The political bickering that’s almost certain to persist could have another unwelcome effect: influencing ratings agencies to cut the U.S. government’s credit score. That happened before, when Standard & Poor’s cut its rating on U.S. government debt in August 2011, and the stock market plunged.

Even so, Wednesday’s performance gave no hint of the dark clouds on the horizon.

The Dow enjoyed big gains throughout the day, up by more than 200 points within minutes of the opening bell. It swelled even bigger in the final half hour of trading, and closed up 2.4 percent to 13,412.55.

The Standard & Poor’s 500 jumped 36.23, or 2.5 percent, to 1,462.42. The Nasdaq rose 92.75, or 3.1 percent, to 3,112.26.

The yield on the 10-year Treasury note rose sharply, to 1.84 percent from 1.75 percent. Prices for oil and key metals were up. The price of copper, which can be a gauge of how investors feel about manufacturing, rose 2.3 percent.

The gains persisted despite small reminders that there are still serious problems punctuating the world economy, like middling growth in the U.S. and the still-unsolved European debt crisis. The government reported that U.S. builders spent less on construction projects in November, the first decline in eight months. And the president of debt-wracked Cyprus said he’d refuse to sell government-owned companies, a provision that the country’s bailout deal says it must at least consider.

Among stocks making big moves, Zipcar shot up 48 percent, rising $3.94 to $12.18, after the company said it would sell itself to Avis. Avis rose 95 cents to $20.77, or 5 percent.

Marriott rose 4 percent, up $1.52 to $38.79, after SunTrust analysts upgraded the stock to “buy.” Headphone maker Skullcandy dropped 13 percent, losing 99 cents to $6.80, after Jefferies analysts downgraded it to “underperform.”

1
Text Only
Local News
  • ARociewilliams_002.jpg Woman shares nearly a century of lessons

    With nearly 100 years of life under her belt, Ocie Viola Williams has plenty of advice to share with the world. Her top two pieces of advice: know the importance of education and don’t expect a teacher to raise your child for you. 

    July 28, 2014 1 Photo

  • psst1 photo page copy.jpg PSST! finishes peachy season

    Peach State Summer Theatre concluded its 2014 season Sunday, a season which broke attendance records for the professional musical theatre company.

    July 28, 2014 1 Photo

  • DSC_2381.jpeg Award-winning young professionals share success secrets

    The Valdosta-Lowndes Chamber’s MetroOne Young Professionals hosted a panel discussion on Tuesday at the Hilton Garden Inn to highlight successful business practices.

    July 27, 2014 1 Photo

  • 140726_summerlibrary002.jpg Library celebrates end of summer reading program

    With the first day of school just around the corner, students are soaking in the last few weeks of summer vacation. The end of summer also means the end of the South Georgia Regional Library’s 2014 summer reading program.

    July 27, 2014 1 Photo

  • artseason1 copy.jpg A sneak peek at some area arts organizations’ 2014-15 seasons

    Beethoven. Tennessee Williams. Non-stop art. Two versions of “The Wizard of Oz.” The 2014-15 arts season is coming.

    July 27, 2014 1 Photo

  • sabalmap.jpg Sabal Trail explains its position

    Representatives from Sabal Trail Transmission recently sat down with The Times to provide an update on the ongoing pipeline and potential economic development opportunities associated with the project.

    July 27, 2014 1 Photo

  • 072514-MoodyComp007.jpg Moody AFB crews race in load competition

    Moody Air Force Base hosted a weapons load competition Friday morning, a maintenance group tradition in which two 23d Maintenance Group A-10 munition load crews raced against the clock to load munitions onto an A-10C Thunderbolt II.

    July 26, 2014 1 Photo

  • moonshine bust.jpg Police close illegal drinking house

    After receiving numerous complaints, the Valdosta Police Department shut down an illegal alcohol sales operation Friday.

    July 26, 2014 1 Photo

  • election.jpg Black earns most votes in runoff

    State Rep. Ellis Black led the votes for state Senate District 8 Friday with seven of seven counties reporting certified results, according to the Georgia Secretary of State’s Office.

    July 25, 2014 1 Photo

  • 140724-LAT1.jpg Little Actors Theatre ready for summer show

    Since 2004, the Little Actors Theatre has provided a place for children ages 6 to 19 to express themselves through acting.

    July 25, 2014 1 Photo

Top News
Poll

Do you agree with the millage rate increases?

Yes. We need to maintain services
No. Services should have been cut.
     View Results