Broadgate: Market News 19/12
19 December 2012
U.S. stocks rallied on strong volume on Tuesday, capping off the S&P 500’s best two-day run in a month, on confidence that a deal would be struck in Washington to avoid painful spending cuts and tax hikes that could hurt the economy.
Banks, energy and technology – sectors that would benefit during economic expansion – led gains as investors remain confident that lawmakers will come to an agreement to avoid the so-called “fiscal cliff” deadline at the end of the year.
The PHLX oil services sector index jumped 3.1 percent, with eight of its 15 components up 3 percent or more.
“The view is that the economy is getting better, and that is always good for energy demand,” said Shawn Hackett, president at Hackett Financial Advisors in Boynton Beach, Florida.
Hackett said the United States would avoid “whatever the cliff means” for the economy, allowing investors to focus on growth.
President Barack Obama’s most recent offer to Republicans in the ongoing budget talks makes concessions on taxes and social programs spending. House Speaker John Boehner said the offer is “not there yet,” though he remains hopeful about an agreement. Senate Democrats, however, have expressed concern about cuts to Social Security.
Financial stocks shot higher, as traders bet on a greater demand for loans and a steepening of the yield curve. U.S. government debt sold off Tuesday, with the benchmark 10-year U.S. Treasury note’s yield briefly hitting its highest since late October.
The S&P financial sector added 1.5 percent.
The Dow Jones industrial average rose 115.57 points, or 0.87 percent, to 13,350.96 at the close. The S&P 500 gained 16.43 points, or 1.15 percent, to 1,446.79. The Nasdaq Composite added 43.93 points, or 1.46 percent, to 3,054.53.
It was the S&P 500’s first back-to-back gain of more than 1 percent since late July.
Stocks of smaller companies outperformed the broader market, with the Russell 2000 up 1.5 percent.
Shares of firearm makers sank in the aftermath of a school shooting in Newtown, Connecticut, on Friday that killed 20 young children and six adults.
Smith and Wesson fell 10 percent to $7.79 on its largest-ever daily volume, though it was still up about 77 percent so far this year. Sturm Ruger and Co slid 7.7 percent Tuesday to $40.60.
Private equity firm Cerberus Capital Management said it would sell gunmaker Freedom Group, whose Bushmaster AR-15 rifle was used in the Connecticut massacre. Dick’s Sporting Goods suspended the sale of certain semi-automatic rifles in its stores nationwide.
Technology shares rose, led by Apple, up 2.9 percent at $533.90 after losing nearly 13 percent in the last two weeks. The S&P Information Technology Index rose 1.7 percent.
Arbitron Inc surged 23.6 percent to $47.03 after Nielsen Holdings NV agreed to buy the media and marketing research firm in a deal worth $1.26 billion. Nielsen rose 4.4 percent to $30.92.
About 7.4 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, more than the daily average so far this year of about 6.5 billion shares.
On the NYSE, roughly 14 issues rose for every five that fell, while on the Nasdaq, advancers outnumbered decliners by a ratio of about 5 to 2.
The euro hovered at multi-month highs against the dollar and yen on Wednesday, having extended recent gains as tentative signs of progress in the U.S. fiscal talks bolstered demand for riskier assets.
The Australian dollar, however, barely budged in part because currency speculators were already holding record long positions in the currency.
The euro was at $1.3224, not far off the overnight high of $1.3238 — a level not seen since May. Against the yen, it fetched 111.35, having scaled a 14-month peak around 111.48, near the Oct 2011 high of 111.57.
“We believe the year-end position squeeze is the main driver of the euro’s broad outperformance at the moment, especially as both valuations and positioning are starting to appear stretched for the high-beta currencies,” analysts at BNP Paribas wrote in a note.
“Unless U.S. fiscal cliff talks take an unexpected turn for the worse, we believe that EUR/USD will meet our 1.3300 year-end target.”
Hopes are high that a deal will be struck between President Barack Obama and House of Representatives Speaker John Boehner to prevent the economy from going over the ‘fiscal cliff’. Both sides have made compromises in recent days and the White House remained confident of an agreement.
The dollar managed to hold its ground against a broadly weaker yen, which remained friendless as markets positioned for the Bank of Japan to ease monetary policy on Thursday.
The BOJ kicks off its two-day meeting on Wednesday and is under intense political pressure to expand its asset-buying program aggressively to snap the world’s third-biggest economy out of its fourth recession since 2000.
The dollar stood at 84.19 yen, not far off a 20-month high of 84.55 set Monday.
Markets will also be keeping an eye on Japan’s trade figures due at 2350 GMT, which could add to the case for bold policy action from the BOJ. The country’s exports have been hurt by a fallout from a diplomatic row with China and feeble global demand.
The standout among the major currencies was perhaps the underperformance of the Australian dollar, which slipped on the greenback despite the ‘risk-on’ market environment.
Traders said further gains were limited for the Aussie given that many speculators already hold bullish positions and need fresh impetus to put on more.
The Australian dollar was at $1.0532, having stalled just below $1.0600 since its rally from the November low of $1.0287 ran out of steam a week ago.
It was still some way off its 2012 peak around $1.0857 and its post-float high of $1.1081 set in mid-2011.
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