U.S. stocks climbed Monday, lifting the Dow Jones Industrial Average and the S&P 500 to their highest levels since Election Day, as Wall Street banked on a deal to avert automatic tax hikes and spending cuts slated to start in January.
“I think the assumption is there is more going on than they are telling us,” said Ron Florance, managing director of investment strategy at Wells Fargo & Co.
“It may be wishful thinking, or it may be they’ve taken some responsibility,” said Florance of the budget negotiations.
Up for a fourth consecutive session, its longest winning run since October, the Dow Jones Industrial Average climbed 14.75 points, or 0.1%, to 13,169.88, with technology companies led by Hewlett-Packard Co. and Cisco Systems Inc. pacing gains that included half of its 30 components.
McDonald’s Corp. rose 1.1% after the fast-food chain reported a 2.4% gain in global sales last month.
The McDonald’s release “would have moved the market six months ago, but everything is just on hold,” said Florance.
Also up for a fourth consecutive session, the S&P 500 Index rose half a point to 1,418.55, with materials advancing the most and consumer discretionary the heaviest weight among its 10 major sectors.
“The narrow trading range of 1,386 to 1,433 on the S&P is still intact. A breakout to the upside on a cliff deal could take the S&P back up to the early-year high at 1,474, assuming the rally lasts more than two days,” Elliot Spar, market strategist at Stifel, Nicolaus & Co., wrote in emailed comments.
“Then reality will set in: it’s still an economy growing at 2% and higher taxes and lower government spending are drags on growth and not upside catalysts,” Spar added.
The Nasdaq Composite Index added 8.92 points, or 0.3%, to 2,986.96.
American International Group Inc. fell after the insurer pegged the cost of Hurricane Sandy and its aftermath at roughly $1.3 billion.
Shares of Apple Inc. declined 0.6% after Jefferies Group Inc. reduced its share-price outlook.
Advancers outpaced decliners on the New York Stock Exchange, where nearly 593 million shares traded. Composite volume approached 3 billion.
The yield on the 10-year Treasury note used in determining mortgage rates and other consumer loans traded at 1.62%.
In the view of Dan Greenhaus, chief global strategist at BTIG LLC, Treasury yields will likely remain where they are given expectations of continuing support from the Federal Reserve. With economic growth and inflation expectations also curbed, “we do not see yields sustainably breaching the 2.0% level in 2013,” he said.
The euro held a slight edge against the U.S. dollar and the price of oil reversed lower, with a barrel of crude down 37 cents to $85.56 a barrel.
Cliff notes
President Barack Obama and House Speaker John Boehner met at the White House to talk about how to avert the billions in tax hikes and spending cuts set to start in the new year.
Both sides declined to offer any details about the discussion, but issued duplicate statements, saying “the lines of communication remain open.”
“The fact that John Boehner went to the White House Sunday is a positive sign,” said Florance, who also found heartening Boehner’s decision to not call a news conference after the meeting. “It’s not great for volatility traders, but it is great for investors,” Florance added.
The Congressional Budget Office has estimated the U.S. economy would drop into a recession in the first half of the new year if a deal is not reached.
Italian equities fell Monday after Italian Prime Minister Mario Monti said he would step down after next year’s budget is approved. The added uncertainty about the euro-area debt crisis pushed the country’s borrowing costs higher.
The developments in Europe are “getting a passing glance, just like Friday’s job numbers,” according to Art Hogan, market strategist at Lazard Capital Markets, who predicted U.S. economic reports in the days ahead would also be largely ignored, so long as the fiscal cliff remains in play.
On Friday, the Dow industrials finished with a gain of 129 points, or 1%, from the prior Friday’s close, with the index rising for a third straight week on the hope that White House and Republican congressional leaders would eventually reach an accord.
The market “continues to price in the ability for some type of resolution to happen before the end of the week,” said Hogan.
Marketwatch
