While you were sleeping: Stocks embrace budget deal
Jan 3 (BusinessDesk) – Equity markets on both sides of the Atlantic rallied on the first day of trading in 2013, buoyed by a US budget agreement that eliminated tax increases that might have tipped the world's No. 1 economy into recession.
In afternoon trading in New York, the Dow Jones Industrial Average gained 1.67 percent, the Standard & Poor's 500 Index climbed 1.74 percent, and the Nasdaq Composite Index rallied 2.16 percent.
“We’re re-valuing the market based on what’s closer to the underlying economy and most of the economic reports have been pretty good,” James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, told Bloomberg News.
Indeed, a report showed that manufacturing in the US increased more than expected in December. The Institute for Supply Management's factory index climbed to 50.7 from 49.5 in November.
Markit's US Manufacturing Purchasing Managers Index rose to 54.0 last month from 52.8 in November.
"With recent indications that growth is also picking up in other key economies around the world, notably in emerging markets such as China and Brazil, and that the euro zone's economic crisis is easing, US companies should benefit as stronger demand lifts exports in early 2013," according to Markit chief economist Chris Williamson.
To be sure, Commerce Department data showed that spending on US construction projects suffered a surprise decline in November.
Bank shares advanced. US regulators led by the Office of the Comptroller of the Currency will replace a largely fruitless effort to find victims of botched foreclosures at the 14 biggest mortgage servicers with flat penalties, Bloomberg reported, citing five people briefed on the talks.
Bank of America, Wells Fargo, JPMorgan Chase and Citigroup are among servicers that may make concessions totaling about US$10 billion, Bloomberg reported.
Shares of Bank of America gained 3.3 percent, Wells Fargo rose 2 percent, JPMorgan Chase advanced 1.6 percent, while those of Citigroup were up 3.6 percent.
Meanwhile, shares of Zipcar soared, last up 48.3 percent, after Avis Budget Group said it would buy the company for about US$500 million in cash. Shares of Avis also gained, last up 4.7 percent.
The American budget deal also buoyed stock markets in Europe, even as Markit data showed euro-zone manufacturing output contracted more than initially estimated in December.
The Stoxx 600 Index finished the day with a 2 percent advance from the previous close on December 31. Benchmark stock indexes in London and Frankfurt also rose, each gaining 2.2 percent, while Paris climbed 2.6 percent.