From The Associated Press
NEW YORK —
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.
All the major U.S. stock indexes swelled by at least 2 percent. For the Dow Jones industrial average, up 263 points soon after the market opened, it was the biggest surge in six months.
Stocks around the world also leapt higher. The major indexes in Britain, France and Germany rose more than 2 percent, and Greece and Spain were up by more than 3 percent. Stocks in Asia also surged.
In the U.S., the rally was extraordinarily broad. For every stock that fell on the New York Stock Exchange, roughly 18 rose.
The Dow was up 263 at 13,369 after the first 45 minutes of trading. The S&P 500 was up 30 to 1,456. The Nasdaq composite was up 82 to 3,102.
The yield on the 10-year Treasury note rose sharply, to 1.84 percent from 1.75 percent, as investors dumped safe harbor investments like U.S. government bonds and plowed money into stocks. The dollar fell against the euro and prices for oil and other commodities rose.
Late Tuesday night the U.S. House of Representatives passed a budget bill meant to ward off the “fiscal cliff.” Many House Republicans balked at voting for the bill because they wanted a deal that did more to cut government spending.
Because lawmakers didn’t have a budget compromise in place when the new year started on Tuesday, the U.S. technically did go over the “fiscal cliff,” meaning tax increases and government spending cuts automatically kicked in that day. Some analysts worried that the combination would kick the U.S. back into recession. But the bill passed Tuesday night by the House will prevent the “cliff” from taking hold. It already has Senate approval, and now awaits a signature from President Barack Obama.
Some investors, even as they watched the stock market leap higher, cautioned that the euphoria could be short-lived. The deal leaves a host of questions unresolved. Notably, the core issue of the “fiscal cliff” standoff in Washington has been the country’s long-term plan for trimming its debt, and the deal doesn’t include any significant deficit-cutting agreement.
Next up is what could turn into a vicious fight over the debt ceiling, or how much the government is allowed to borrow. And the U.S. could still get its debt rating downgraded by one of the ratings agencies. The stock market plunged in August 2011 after Standard & Poor’s cut the U.S. government’s credit rating.
Some investors also noted that the “fiscal cliff,” which has dominated headlines for weeks, is only masking serious problems punctuating the world economy, including the still-unsolved European debt crisis and middling growth for the U.S. economy. Wednesday, 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, or $3.96, to $12.20 after the company said it had agreed to be acquired by Avis. Avis rose $1.16 to $20.98. Zipcar has a business model that’s popular with drivers, allowing them to rent cars for just a few hours at a time. The company has struggled to win over investors, however, and its stock plunged nearly 39 percent in 2012. Avis rose 84 percent in the same period.