Stay Cautious as the Dow Pops on Partial Fiscal-Cliff Deal
With a partial fiscal-cliff deal finally being reached in Washington yesterday, the Dow Jones Industrial Average is surging higher this afternoon. As of 12:50 p.m. EST, the index is up 222 points, or 1.7%, to 13,326. The other major indexes are also climbing higher on the first trading day of 2013. The S&P 500 is up 1.7%, while the Nasdaq is leading the three indexes with a 2.2% rise.
But as the markets rapidly move higher, investors should stay cautious, because the deal that was agreed upon yesterday only resolved some of the issues that, when combined, comprised the fiscal cliff. My Fool colleague Dan Caplinger explained this morning how the deal will affect you and what politicians must still hammer out over the next few months. One big looming issue is the debt ceiling, which was hit days ago but has been extended by the Treasury until sometime in February. Furthermore, decisions must be made regarding additional spending cuts and whether unemployment benefits will be extended once more.
So, while every single one of the Dow's 30 components is trading in the green today, we must ask: Is this a fake rally?
On such an effervescent trading day, the Dow losers of the day are those companies which have gained less than 1%. I know, you're probably thinking the same thing I was: What bums! Currently, only four Dow components are up less than 1%: Johnson & Johnson , Merck , UnitedHealth , and Wal-Mart .
One reason that three of the four "losers" are straggling may be the medical excise tax that went into effect yesterday. The new tax will be imposed on the sale of medical devices and will help pay for the Affordable Care Act. While this tax will most directly affect Johnson & Johnson, it could have a trickle-down effect on health insurers and other companies operating in the medical industry.
As for Wal-Mart, the company still has a long road ahead when it comes to the bribery allegations that arose in 2012. Until this issue is resolved, it will likely hold the stock price back while investors await a possible resolution. But as e-tailers like Amazon snatch up market share, some believe that Wal-Mart has more to worry about than a few criminal charges.
The article Stay Cautious as the Dow Pops on Partial Fiscal-Cliff Deal originally appeared on Fool.com.Fool contributor Matt Thalman owns shares of Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson and UnitedHealth Group. 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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