Stocks Soar on Fiscal Cliff Deal; Dow Climbs More Than 300 Points
The U.S. stock market surged on Wednesday as lawmakers reached a last minute agreement to avert the fiscal cliff.
Investors who had been concerned about the immediate effects to the economy if a deal had not been reached poured money into stocks and other risky assets. In a memorable first trading day of the year, the Dow and S&P climbed well over two percent while the Nasdaq notched a gain of more than three percent.
The Dow Jones Industrial Average soared over 300 points to close just below 13,413. On a percentage basis, the Dow jumped 2.35 percent on the first trading day of the year.
The S&P 500 climbed more than 36 handles, or 2.54 percent, to 1,462. The biggest winner on the session was the Nasdaq which surged just over three percent or almost 93 points on the session.
All of the major averages gapped higher at the open of trade after the debt deal was announced late on Tuesday evening. Stocks were trending lower on an intra-day basis around mid-day, but heavy buying pushed the major averages out near session highs.
The U.S. dollar was essentially flat against a basket of foreign currencies on Wednesday, and dollar index futures notched a gain of only 0.06 percent. The euro was weaker against the greenback with the EUR/USD pair falling 0.32 percent to $1.3175.
The dollar also gained against the yen as the USD/JPY added 0.38 percent. Losses came against the Canadian dollar, however, with the USD/CAD falling 0.66 percent. Risk appetite also drove the Australian dollar higher versus the greenback with the AUD/USD surging 0.91 percent.
Crude oil managed gains in the wake of the jubilant market atmosphere. At last check, NYMEX crude futures, the U.S. benchmark, were up a little over one percent to just under $93.00. Brent crude contracts were also trading up more than one percent to $112.33. Natural gas continued its sell-off, however, and notched a loss of around 3.50 percent on the session.
Precious metals fared well to start the year. COMEX gold futures had added around 0.59 percent to $1,685.60 at last check while silver futures were up well over two percent to just under $31.00.
In the agricultural complex, almost all of the grains sustained losses on the session. Corn and soybean prices were down around one percent and wheat fell almost three percent.
Treasuries plummeted on the day as money flowed out of bonds and into riskier assets. The iShares Barclays 20+ Year Treasury Bond ETF (NYSE: TLT) lost 1.34 percent to close at $119.56.
Yields surged across the curve as investors dumped government bonds. The yield on the 30-Year Bond jumped 10 basis points to 3.04 percent and the 10-Year Note saw its yield climb 8 basis points to 1.83 percent. Yields also moved higher on shorter-term maturities.
Volatility and Volume
The VIX has been absolutely crushed in recent days as volatility expectations due to the fiscal cliff have come out of the market. The VIX plunged another roughly 19 percent on Wednesday to 14.65 after falling more than 22 percent on Monday ahead of the fiscal cliff deal. The sell-off in the VIX has been staggering as the fear barometer has fallen from above 22 to below 15 in the course of two trading days.
Volume was heavier than normal on the session. Around 177 million shares of the SPDR S&P 500 ETF (NYSE: SPY) traded hands compared to a 3-month daily average of roughly 139 million. It was somewhat surprising, however, that volume was not heavier given the fiscal cliff agreement and it being the first trading day of the year. This could indicate that the market is skeptical of the huge rally that has taken place over the last two days.
Weak 2013 earnings guidance triggered a steep sell-off in shares of Dole Food Company (NYSE: DOLE), which fell more than 13 percent on the session.
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