While you were sleeping: Progress on US budget deal
Jan 2 (BusinessDesk) – The New Year could begin on a positive note if US lawmakers in the House of Representatives approve – as did their counterparts in the Senate – a deal that averts the worst impact of falling over the fiscal cliff.
In an unusual New Year's Day session at around 2am Eastern standard time, the Senate voted in favour of a bipartisan deal that holds taxes at current rates for almost all but the wealthiest of Americans. The debate over spending cuts has been delayed for two months.
House Republicans are set to meet on Tuesday afternoon in Washington to decide on their next move. US markets are closed Tuesday for the New Year's holiday.
If approved in the House too, the US$600 billion in tax increases and spending cuts that had been forecast to tip the world's largest economy into recession in the first half of this year will be avoided.
Signs of a potential resolution helped boost Wall Street on Monday, lifting the three benchmark stock indexes by at least 1.28 percent.
Still, the proof is in the pudding, investors say.
"My personal scepticism, I don't trust anything out of Washington until it is signed, sealed and delivered, and it is not signed, sealed and delivered," Ron Florance, managing director of investment strategy for Wells Fargo Private Bank, based in Scottsdale, Arizona, told Reuters.
Central bank stimulus certainly helped equities last year. In 2012, the Standard & Poor's 500 climbed 13.4 percent, its best annual performance since 2009. Still, the index increased only 0.7 percent last month, its worst December since 2007, according to Bloomberg.
The Dow Jones Industrial Average gained 7.3 last year, while the Nasdaq Composite Index advanced 15.9 percent. Europe's Stoxx 600 Index rose 14 percent for the year.
What lies ahead? Well Laszlo Birinyi is as bullish as ever. The benchmark gauge for American equity is within 10 percent of its record after gaining 107 percent since March 2009, data compiled by Bloomberg show.
Birinyi told Bloomberg that he expects the market to rise as more individuals return to it in the year ahead.
Pacific Investment Management's Bill Gross, manager of the world’s biggest bond fund, expects Treasury five-year notes to yield 0.7 percent at the end of 2013, according to Bloomberg, citing a Twitter post by Gross on Monday. The note yielded 0.72 percent yesterday. He also said he expects the US dollar to decline and oil to climb above US$100 in 2013.