NEW YORK (Reuters) - U.S. stocks closed out 2012 with their strongest
day in more than a month, putting the S&P 500 up 13.4 percent for
the year, as lawmakers in Washington closed in on a resolution to the
"fiscal cliff" negotiations.
The S&P 500's gain for the year marks its best
performance since 2009, as stocks navigated through debt crises in
Europe and the United States that dominated the headlines. Still, with
numerous issues involving budget talks unresolved, markets could still
be open to a shock should the deal break down unexpectedly.
Fittingly, in the last session of the year, stocks
bounced back and forth on the headlines out of Washington, as both
President Barack Obama and Republican Senate leader Mitch McConnell
issued statements indicating a deal to avert the cliff was close.
"The worst news could have been the president coming
out and saying, 'We don't have a deal and we've giving up,' and he
didn't say that," said Ron Florance, managing director of investment
strategy for Wells Fargo Private Bank, based in Scottsdale, Arizona.
"My personal skepticism, I don't trust anything out of
Washington until it is signed, sealed and delivered, and it is not
signed, sealed and delivered."
While a deal on the cliff is not yet official,
investors may be ready to take on more risk next year in hopes of a
greater reward.
McConnell said an agreement had been reached with
Democrats on all of the tax issues in the potential deal, removing a
large hurdle in the talks. An agreement is needed in order to avert a
combination of tax hikes and spending cuts that many believe could push
the U.S. economy into recession.
A source familiar with the matter said an emerging
deal, if adopted by Congress and President Barack Obama, would raise
$600 billion in revenue over the next 10 years by increasing tax rates
for individuals making more than $400,000 and households earning above
$450,000 annually.
Despite the uncertainty, the market encountered only
occasional bouts of volatility this year. For the first time since 2006,
the CBOE Volatility Index or VIX (
^VIX),
the market's favored indicator of anxiety, did not surpass the 30
level, a threshold that usually signals heightened worry among
investors.
"Given all the threats in 2012, the VIX was relatively
tranquil," said Bill Luby, the author of the VIX and More blog in San
Francisco, citing the crises in Spain and Greece, along with constant
intervention from the Federal Reserve.
The Dow Jones industrial average (
^DJI) gained 166.03 points, or 1.28 percent, to end at 13,104.14. The Standard & Poor's 500 Index (
^GSPC) gained 23.76 points, or 1.69 percent, to finish at 1,426.19. The Nasdaq Composite Index (
^IXIC) gained 59.20 points, or 2.00 percent, to close at 3,019.51.
Monday's gains enabled the S&P 500 to snap a five-day losing streak, its longest skid since September.
The S&P 500 closed out 2012 with a 13.4 percent
gain for the year, compared with a flat performance in 2011. The Dow
rose 7.3 percent in 2012 and the Nasdaq climbed 15.9 percent.
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