Loading...

After The Close - The first trading day of 2013 was a big success for the bulls. News Monday night that an agreement was reached between President Obama and the Senate to keep the country from going over the dreaded “fiscal cliff”, one that has since been approved by the House of Representatives, was cheered by investors both on the homeland and in the overseas markets. While much work still needs to be done by President Obama and the new Congress, the accord was a step in the right direction toward tackling some of the nation’s budgetary problems. 

The buying was encompassing, with the major sectors finishing well into positive territory. Leadership was shown by the basic materials, financials, energy, and consumer cyclical stocks. All told, advancing issues led decliners by a wide margin on both the Big Board and the NASDAQ. Among the most active stocks today were Bank of America (BAC - Free Bank of America Stock Report), Ford (F), Hewlett-Packard (HPQ - Free Hewlett-Packard Stock Report), Facebook (FB), and Microsoft (MSFT - Free Microsoft Stock Report). It was a real good day for technology and semiconductor stocks, with the former led higher by shares of industry giant Apple (AAPL).

As noted, the good feelings about the partial U.S. budget agreement were not only confined to these shores. Overnight, Asia’s major indexes finished higher on the “fiscal cliff” news, as well as on a decent report on China’s manufacturing activity. Specifically, China’s ISM index came in above 50 for the third consecutive month, helped by a moderate rebound in domestic demand and steady growth in industrial production. All sign posts point to a better economy in China in 2013. Not surprisingly, Hong Kong’s Hang Sang Index finished nearly 3% higher. Meantime, all of the major European bourses were up sharply, with advances of more than 2% for Germany’s DAX, France’s CAC-40, and London’s FTSE-100. The “fiscal cliff” news was the primary reason for the strong showing on the Continent, we believe.

We did get some U.S. economic news on a day in which the U.S. budget deal dominated the newswires. Specifically, the Institute for Supply Management reported that U.S. manufacturing activity expanded slightly in December, coming in a few basis points above expectations. While a reading a 50.7 is nothing to write home about, an encouraging sign was a significant improvement in the index’s employment component, which jumped from 48.4 in November, to 52.7 last month. It could be an indication of a better result this Friday morning when the U.S. Labor Department reports its findings on non-farm payrolls for December. We also will get data on the nonmanufacturing (services) sector this week, which could provide additional clues as to how retailers fared in the latest holiday shopping season.

All in all, investors are clearly feeling very bullish about equities right now. The yield on the benchmark 10-year Treasury note, which moves in the opposite direction to the price, has been on a steady rise, as the need for safe-haven holdings has dissipated in recent days with an agreement now in place on Capitol Hill. Still, all the buying has left the market overbought. The S&P 500 Volatility Index (or VIX) currently sits below 15, a reading that would certainly suggest trading has overheated, and could be susceptible to selling if the forthcoming news was to disappoint. Hence, Friday’s report on U.S. labor market conditions is sure to be closely monitored by the investment community.   - William G. Ferguson 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

-

12:30 PM EST - The U.S. stock market is starting the New Year off with a substantial rally. As we pass the noon hour in New York, the Dow Jones Industrial Average is up 227 points (1.5%); the S&P 500 Index is ahead 25 points (1.7%); and the tech-heavy NASDAQ, which is leading the market higher, is tacking on 67 points (2.2%). Market breadth is overwhelmingly positive, with advancing stocks ahead of decliners by about 7 to 1 on the NYSE. All of the market sectors are participating in the move higher, with leadership in the basic materials, capital goods, and technology stocks. In contrast, there is no real weakness in the market, as even the defensive high-yielding utility issues are up well over 1% today.

Technically, the S&P 500 Index has recovered most of the ground lost in the pullback that started in mid-December. Over the past two trading days, the Index has pushed back above its 50-day moving average, located at 1,411, and is now about 1.5%, from its 52-week high reached in September. Trading volume was light on Monday, the last day of 2012, but more traders may well be entering the market today. Sentiment has turned dramatically positive, as the VIX is off 12% today, to a reading of just under 16.

The rally comes just as the politicians in Washington have managed to strike a budget deal, preventing the nation from going over the widely watched “fiscal cliff”. Meanwhile, with the holidays now officially over, it’s back to business. Notably, there have been a few economic reports released today. The ISM Manufacturing Index for December came in with a reading of 50.7, which was just about what analysts had been expecting, and slightly better than last month’s figure. But, construction spending for November dipped 0.3%, where a slight increase had been forecast. Tomorrow, we get a look at the employment situation, with the weekly initial and continuing jobless claims. Then, on Friday, the December employment report will be released, and that will certainly be a report that will not go unnoticed.

The corporate news has been light. However, shares of Zip Car (ZIP) are up sharply, on reports that Avis (CAR) will be acquiring the company at a substantial premium. Dow component Hewlett-Packard stock is trading higher on reports that the struggling company will be looking to sell its underperforming units. - Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

-

10:10 AM EST - It is all about the fiscal cliff. Specifically, after weeks of fretting about whether a budget deal would get done, with resultant elevated levels of volatility in the U.S. equity markets, and following Monday's nifty gains in anticipation of such a deal getting done at last, the actual inking of that accord has unleashed a further torrent of buying.

Thus, as we pass the half-hour mark of the first trading day of the new year, we find that the Dow Jones Industrial Average is up by 260 points; the Standard and Poor's 500 Index is ahead by 30 points; and the NASDAQ is streaming ahead by 80 points. The small- and mid-cap indexes, as noted by the Russell 2000 Composite and the S&P Mid-Cap 400, are also up strongly, as might be expected, gaining 19 and 22 points, respectively.

Additionally underscoring the strong tone of the buying is the fact that the Big Board and the NASDAQ are enjoying highly positive advance-decline ratios of some 10 to 1. All groups are participating in the advance following the striking of a very partial budget deal that essentially serves to kick the can down the road on more controversial spending reductions. That said, the euphoria is hard to argue with, and a very good 2012 for equities is now being followed by a stellar start to the new year. - Harvey S. Katz 

At the time of this article's writing, the author did not have positions in any of the companies mentioned.     

-

Stocks to Watch from The Survey On the first trading day of 2013, corporate news will almost certainly take a back seat to the drama that has unfolded in our nation’s Capitol, as lawmakers have passed legislation to sidestep the most damaging aspects of the “fiscal cliff”. Equities of all stripes are poised to advance nicely on the news, though some stocks will likely make even more notable moves. To wit, shares of Zipcar (ZIP) are soaring in the premarket, after the car rental company agreed to be acquired by industry peer Avis Budget Group (CAR) for $12.25 a share, a premium of nearly 50% over ZIP’s preannouncement closing price. Shares of phonemaker Nokia Corp. (NOK) are also up sharply ahead of the bell, on news that a batch of the company’s Lumia smartphones had sold out quickly in China. – Matthew E. Spencer 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

-

Before The Bell - A new year on Wall Street and the first trading day of that new year will begin within the hour, and early signs are that this year will commence on a decidedly strong note. The reason is the government's ability, notwithstanding deep divisions, to finally fashion a tax package that for now averts the dreaded fiscal cliff. This is basically the outcome that we have been forecasting right along.

Still, following overwhelming approval in the Senate, where the vote to confirm passage was a resounding 89 to 8, and a more modest up vote of 257 to 167 in the Republican-dominated House, the feared tax increases on the entire U.S. population was avoided. Only those individuals earnings more than $400,000 annually and couples earning above $450,000 a year will see their base income tax rates go up.

Meanwhile, the good news in Washington, which was largely forecast on Monday, when Wall Street ended a very good year on a stirring upnote, is carrying over to the global markets this morning, where gains have been seen in those markets in Asia that are open for trading today, and as well as in Europe, where the bourses are all up in excess of 1%. And over here, following the Dow's 166-point climb on Monday, the equity futures are surging anew, with the Standard and Poor's 500 Index futures in the black to the tune of 27 points and the NASDAQ futures better by 57 points, presaging a strongly higher opening when traders get down to business in less than an hour from now.

In truth, though, the budget deal was not a ground breaker, nor the so-called Grand Bargain that so many sought, as spending was not really affected, while the battle over the debt ceiling looms ahead. The Congress, in reality, still kicked the can down the road a touch, as many had been fearing. Nevertheless, the feared fiscal cliff was averted after a few hours of technically going past the deadline. However, the automatic spending cuts, also known as sequestrations, that served as the rock at the bottom of the so-called fiscal cliff, were pushed out by two months, and will serve as part of an overall package that the Administration hopes will result in a comprehensive deal that incorporates, as well, an increase in the debt ceiling. Some $110 billion in spending cuts are scheduled to be on the table at that time.

That said, the economy remains vulnerable to the imposition of the somewhat higher tax bills, to the expanding deficit, and to the further likely bickering in Congress. It is not a promising scenario, and we sense that the stock market could feel some pressure after the short-term euphoria starts to wear off either later today or further during the month.

Finally, there is other news to decipher today and in the days to follow, including the issuance of data on manufacturing activity this morning, where a slight increase seems to be the forecast for December. Then, tomorrow, we are due to get reports on weekly jobless claims and auto sales. Finally, Friday will bring surveys on monthly payrolls, the unemployment rate, nonmanufacturing activity, and factory orders. All of these metrics could have some impact--especially the payroll figures--particularly since the latest crisis in Washington has, for now, been avoided--at least in the short term. – Harvey S. Katz

At the time of this article's writing, the author did not have positions in any of the companies mentioned.