Stocks start new year with a bang

Budget action cheers Wall Street, sends Dow up 308.41

A trader works on the floor at the New York Stock Exchange in New York, Wednesday, Jan. 2, 2013.   The fiscal cliff compromise, for all its chaos and controversy, was enough to send the stock market shooting higher Wednesday, the first trading day of the new year. (AP Photo/Seth Wenig)

A trader works on the floor at the New York Stock Exchange in New York, Wednesday, Jan. 2, 2013. The fiscal cliff compromise, for all its chaos and controversy, was enough to send the stock market shooting higher Wednesday, the first trading day of the new year. (AP Photo/Seth Wenig)

Thursday, January 3, 2013

— The federal budget compromise, even with all its unresolved questions, was enough to ignite the stock market on Wednesday, the first trading day of the new year.

The Dow Jones industrial average jumped 308.41 points, its biggest gain since December 2011. It’s now just 5 percent below its record high close reached in October 2007. The Russell 2000, an index that tracks smaller companies, shot up to the highest close in its history.

The Dow enjoyed big gains throughout the day, up by more than 200 points within minutes of the opening bell. It swelled even bigger in the final half hour of trading and closed up 2.4 percent to 13,412.55.

The Standard & Poor’s 500 jumped 36.23, or 2.5 percent, to 1,462.42. The Nasdaq rose 92.75, or 3.1 percent, to 3,112.26.

Volume was heavier than the recent average at 4.1 billion shares.

Stock indexes throughout Europe and Asia were also higher. A leading British index, the FTSE 100, closed above6,000 for the first time since July 2011.

In the U.S., the rally was extraordinarily broad. For every stock that fell on the New York Stock Exchange, roughly 10 rose. Technology stocks rose the most. U.S. government bond prices fell sharply as investors pulled money out of safe investments. And the VIX, an index that measures investors’ expectations of future market volatility, plunged more than 18 percent to 14.68, the lowest close since October.

The last week of each year and the first two days of the new year usually average out to a gain for U.S. stocks. But this year stood out. From 2008-12, the Dow rose an average of 93 points on the first trading day of the year, less than a third of Wednesday’s gain. During that period the Dow fell on the first trading day of the year only once, in 2008.

Despite the euphoria, many investors remain cautious. The deal that politicians reached postpones the country’s budget reckoning, they said, rather than averting it.

“Nothing got solved,” said T. Doug Dale, chief investment officer for Security Ballew Wealth Management in Jackson, Miss.

According to these and other market watchers, investors were celebrating Wednesday not because they love the budget deal, but because they were grateful there was any deal at all.

“Most people think that no deal would have been worse than a bad deal,” said Mark Lehmann, president of JMP Securities in San Francisco.

The House passed the budget bill late Tuesday, a contentious exercise because many Republicans had wanted a deal that did more to cut government spending. The Senate had already approved the bill.

The late-night vote was a product of lawmakers wanting to avoid government spending cuts and tax increases that kicked in Tuesday, the start of the new year, because there was no budget deal ready. The scenario came to be known as the “fiscal cliff,” because of the threat it posed to the fragile U.S. economic recovery.

The bill passed Tuesday night ended the stalemate for now, but it leaves many questions unanswered, economists said.

“There’s definitely another drama coming down the road,” said Lehmann. “That’s the March cliff.”

The political bickering that’s almost certain to persist could influence ratings agencies to cut the U.S. government’s credit score. That happened before, when Standard & Poor’s cut its rating on U.S. government debt in August 2011, and the stock market plunged.

Even so, Wednesday’s performance gave no hint of concern about the future.

The yield on the 10-year Treasury note rose sharply, to 1.84 percent from 1.75 percent. Prices for oil and key metals were up. The price of copper, which can be a gauge of how investors feel about manufacturing, rose 2.3 percent.

The gains persisted despite small reminders that there are still serious problems punctuating the world economy, like middling growth in the U.S. and the still-unsolved European debt crisis. The government reported that U.S. builders spent less on construction projects in November, the first decline in eight months. And the president of debt-wracked Cyprus said he’d refuse to sell government-owned companies, a provision that the country’s bailout deal says it must at least consider.

Among stocks making big moves, Zipcar shot up 48 percent, rising $3.94 to $12.18, after the company said it would sell itself to Avis. Avis rose 95 cents to $20.77, or 5 percent.

Marriott rose 4 percent, up $1.52 to $38.79, after SunTrust analysts upgraded the stock to “buy.” Headphone maker Skullcandy dropped 13 percent, losing 99 cents to $6.80, after Jefferies analysts downgraded it to “underperform.”

Business, Pages 21 on 01/03/2013