Why the Dow Celebrated Early


Investors popped the champagne early today. Despite no resolution to the fiscal cliff as of this writing, the Dow Jones Industrial Average (INDEX: ^DJI) jumped 166 points or 1.3%. The S&P 500 and Nasdaq were even stronger, gaining 1.7% and 2%, respectively. For the year, the Dow moved up a modest 7.4%, or 887 points.

While no grand agreement was made on the fiscal cliff, lawmakers did appear to be making progress and some parts of the agenda in the waning hours of 2012. Remarks this afternoon from President Obama hinting that Washington was nearing compromise helped jump-start markets. Senate Minority Leader Mitch McConnell also said the two parties had reached an agreement on tax rates that would allow Bush-era tax cuts to expire on individuals making more than $400,000 a year and households with incomes above $450,000. Politicians seemed content to deal with the tax issue immediately and leave decisions on spending cuts for the new year.

Hewlett-Packard (NYS: HPQ) led today's charge, gaining 4.2%. The venerable PC maker received a vote of confidence from the Department of Veterans Affairs, which decided to maintain a $543 million contract with HP after complaints from IBM prompted its reevaluation. HP has been the worst-performing stock on the Dow this year, falling 45%, but has showed signs of life since the Autonomy debacle, rising more than 20% after the November announcement. Many analysts see the struggling tech company as a value play.

Economically sensitive Caterpillar (NYS: CAT) and General Electric (NYS: GE) jumped 3.2% and 2.7%, respectively, as the industrial giants stands to gain more than most Dow stocks from a fiscal cliff resolution.

Outside the Dow, Apple (NAS: AAPL) climbed 4.4%, helping to propel the S&P 500 and Nasdaq to outsized gains. No major news drove the iPhone maker's gains, but its shares have appeared to reach a bottom of sorts following the post-iPhone 5 release sell-off, as the stock has now twice tested the $500 level and bounced back both times. With the new year now just hours away, the December profit-taking season has also ended, which means that Apple shareholders who may have sold to capture savings from a 15% capital gains rates, which are expected to go up, may now be buying once again. With the company's next earnings report less than a month away, hopes may be building about an earnings beat.

Markets will be closed tomorrow, but when investors wake up New Year's Day they can count on an increase in the payroll tax among other changes soon to be made clear. Macroeconomic indicators favor a strengthening recovery in 2013, but the effects of the fiscal cliff could throw the recovery off course. Expect a busy first week.

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The article Why the Dow Celebrated Early originally appeared on Fool.com.

Jeremy Bowman owns shares of Apple. The Motley Fool owns shares of Apple and General Electric. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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