U.S. stocks surged on the last day of a year by the most since 1974 as lawmakers neared a budget deal to prevent more than $600 billion in spending cuts and tax increases. Treasuries slid while gold rose.
The Standard & Poor’s 500 Index jumped 1.7 percent to 1,426.19 at 4 p.m. in New York for its biggest gain since Nov. 19. The Stoxx Europe 600 Index closed 0.3 percent higher. Ten-year Treasury yields were up six basis points at 1.76 percent, still the lowest-ever year-end close. The Japanese yen weakened, capping the biggest annual drop versus the dollar in seven years. Gold extended a 12th annual gain, the longest streak since at least 1920.
The S&P 500 completed a 13 percent gain for 2012, its best year since 2009. Equities opened the session lower after weekend negotiations failed to produce an agreement, then rallied on reports of progress. Benchmark indexes climbed to their highs of the session after Senate Republican Leader Mitch McConnell said lawmakers reached an agreement on all tax issues and were “very, very close” to a deal to avert the so called fiscal cliff.
“This all makes me hopeful that Congress can at least defuse the ticking time bomb,” said Jack Ablin, who helps oversee about $66 billion as chief investment officer of BMO Private Bank in Chicago. “Any positive news coming out of Washington is going to be taken as pretty bullish among investors who already have very low expectations. Just the fact that Congress can agree on something is worth celebration.”
President Barack Obama said that a deal to avert the so-called fiscal cliff is “within sight” though it hasn’t been completed. The U.S. House of Representatives doesn’t plan any votes on the budget tonight, meaning that Congress for now will fail to prevent the $600 billion in tax increases and spending cuts set to start at midnight. Congress could reverse them by acting retroactively early in 2013.
Today’s late-day rally left the S&P 500 with a gain of 0.7 percent for the month, its worst December since 2007. Financial shares jumped 26 percent this year while consumer, health-care and technology companies added at least 13 percent for the biggest gains among the main industries in the benchmark index. Utilities had the only decline among the 10 groups, dropping 2.9 percent.
The Chicago Board Options Exchange Volatility Index, known as the VIX, plunged 21 percent to 18.02 today for its biggest drop since August 2011. The index fell 23 percent for 2012, the most in three years.
Volume in S&P 500 stocks was about 1.4 percent below the 30-day average today, according to data compiled by Bloomberg. Trading of U.S. Treasuries ended at 2 p.m. New York time today and all markets will be shut tomorrow for the New Year’s holiday.
Gauges of technology, commodity and consumer companies rose at least 2 percent for the biggest gains of the 10 main groups in the S&P 500 today.
Caterpillar Inc., Hewlett-Packard Co. and General Electric Co. climbed at least 2.7 percent to lead gains in all the Dow Jones Industrial Average, sending the gauge up 166.03 points to 13,104.14 as it capped a 7.3 percent gain for 2012. Facebook Inc. climbed 2.7 percent today after Bank of Montreal raised its rating on the shares.
Europe’s benchmark Stoxx 600 capped a 14 percent gain for the year, also the biggest annual rally since 2009. ACEA SpA slipped 2.4 percent after saying it will sell its photovoltaic plants to RTR Rete Rinnovabile Srl. Bankia SA slid 3.2 percent. Viscofan SA climbed 6.8 percent for the biggest gain in the regional index.
The S&P GSCI gauge of 24 commodities added 0.3 percent today, and a similar amount for the year.
Zinc, copper, oil and aluminum increased at least 0.5 percent on signs of firming growth in China. Crude oil added 1.1 percent to $91.82 a barrel, the highest settlement since Oct. 18. Prices dropped 7.1 percent this year.
China’s manufacturing expanded at the fastest pace since May 2011 in December. The final reading of a Chinese purchasing managers’ index by HSBC Holdings Plc and Markit Economics rose to 51.5, compared with 50.9 for a preliminary reading and 50.5 in November. A level above 50 signals expansion.
Gold for February delivery advanced 1.2 percent to $1,675.80 an ounce on renewed speculation that central banks from Europe to China will take steps to spur economic growth. Prices gained 7 percent this year for a 12th straight gain as central banks from Europe and the U.S. to China pledged additional stimulus to spur economic growth.
Natural gas lost 3.4 percent for the biggest drop in commodities. Hedge funds cut bets on U.S. natural gas to the lowest level since April as forecasts for warmer-than-normal weather in mid-January raised speculation that heating demand won’t be enough to erode a stockpile glut.
Money managers reduced net-long positions, or wagers on rising prices, by 13 percent in the week ended Dec. 24, according to the Commodity Futures Trading Commission’s Dec. 28 Commitments of Traders report. It was the least since the week ended April 24. Gas has tumbled 14 percent from a one-year high on Nov. 23.
The New Zealand dollar strengthened against 15 of 16 major counterparts, rising 1.1 percent to 82.86 U.S. cents. South Korea’s won appreciated to its strongest level in almost 16 months versus the dollar.
The yen weakened 1 percent to 86.73 per dollar, trading at a more-than two-year low. The Japanese currency declined 11 percent versus the dollar this year, the biggest annual slump since 2005, amid speculation the Bank of Japan will increase cash provisions to stoke inflation.
The Shanghai Composite Index of stocks rose 1.6 percent to a six-month high today. Japan’s Nikkei 225 Stock Average rose 0.7 percent, bringing its annual advance to 23 percent, the biggest since 2005.