U.S. Stocks Have Best Week in 13 Months After Budget Deal

U.S. stocks rallied for the week, sending benchmark indexes to their biggest gains in 13 months, as lawmakers passed a bill averting spending cuts and tax increases known as the fiscal cliff.

All 10 industry groups in the Standard & Poor’s 500 Index advanced in the holiday shortened-week. Bank of America Corp. and Caterpillar Inc. climbed at least 6.6 percent, pacing gains among financial and industrial companies. An index of consumer stocks jumped to a record as Ross Stores Inc. and TJX Cos. announced same-store sales that topped estimates. General Motors Co. and Ford Motor Co. rallied more than 5.4 percent as auto sales beat forecasts.

The S&P 500 rose 4.6 percent to 1,466.47, the highest level since December 2007. The benchmark gauge had the best three-day start of a year since 2009. The Dow Jones Industrial Average added 497.10 points, or 3.8 percent, to 13,435.21. Both measures posted the best weekly increase since December 2011. The Russell 2000 Index of small companies and the S&P Midcap 400 Index reached all-time highs after jumping 5.7 percent and 5.2 percent, respectively.

“It’s understandable how the markets have rallied,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $85 billion, said in a telephone interview on Jan. 2. “Anyone who was concerned about the fiscal cliff sold and certainly had time to do so, so the market was cleaned out by the time we got to the final days of December.”

The S&P 500 jumped 1.7 percent on Dec. 31, the biggest rally on the final day of a year since 1974, as Republican and Democratic lawmakers made last-minute concessions to finalize a deal on budget talks. The index surged 2.5 percent on Jan. 2, following the New Year’s holiday, after the House of Representatives passed the budget bill, undoing income tax increases for more than 99 percent of households.

Fed Stimulus

Stocks slipped on Jan. 3 as Federal Reserve policy makers said they will probably end their $85 billion monthly bond-purchase program sometime in 2013. Equities resumed gains on the final day of the week as a report showing employers added workers in December at about the same pace as the prior month spurred speculation that Fed stimulus measures won’t end soon.

The jobs report “wasn’t exciting at all,” Joshua Silva, senior portfolio strategist at Attalus Capital LP in Philadelphia, which manages about $900 million, said in a phone interview. “That’s not great for the economy, but it’s also not meaning that the Fed is going to do anything dramatic.”

2012 Rally

The S&P 500 rose 13 percent in 2012, its biggest annual gain in three years, as the Fed expanded asset purchases and the European Central Bank announced an unlimited bond-buying plan. Fed Chairman Ben S. Bernanke said at a Dec. 12 press conference that the central bank will continue buying bonds to boost the economy until officials see “substantial improvement in the outlook for the labor market.”

The benchmark equities index has surged 117 percent since reaching a 12-year low of 676.53 in 2009.

The week’s advance in stocks prompted investors to cut demand for protection against losses, driving down the cost of options every day during the week. The Chicago Board Options Exchange Volatility Index, known as the VIX, plunged 39 percent to 13.83 for the biggest slump since its inception two decades ago.

The earnings season will unofficially start as Alcoa Inc., the first Dow company to announce results, is due to report on Jan. 8. Fourth-quarter profits from S&P 500 companies probably increased 2.9 percent, according to analysts’ estimates compiled by Bloomberg. That would be the second-lowest quarterly growth since 2009, the data show.

Banks Surge

An index of financial companies in the S&P 500 advanced 5.4 percent for the biggest weekly gain since March. Bank of America climbed 6.6 percent to $12.11 and JPMorgan Chase & Co. added 4.9 percent to $45.36.

Bank of America’s brokerage and JPMorgan’s asset-management division are among businesses ripe for divestiture if U.S. banks break up to improve stock prices, according to Mike Mayo, an analyst with CLSA Ltd. Bank stock prices could double if risk and cost of capital at the firms were reduced, reversing past efforts to boost returns by taking on more risk, he said.

Industrial companies jumped 5 percent to the highest level since June 2008. Caterpillar increased 9.3 percent to $94.92 as the world’s largest maker of construction and mining equipment was boosted to buy from hold at ISI Group.

Consumer-discretionary shares in the S&P 500 surged 4.8 percent to a record high. Ross rallied 8.9 percent to $57.95 and TJX advanced 7.1 percent to $44.56.

Holiday Sales

December sales beat analysts’ estimates after retailers kept inventories lean in a tepid holiday season and attracted shoppers with last-minute discounts. Same-store sales for the more than 20 companies tracked by Swampscott, Massachusetts-based Retail Metrics Inc. rose 4.8 percent, excluding drugstores, beating the estimate for a 3.4 percent gain, the firm said.

GM gained 7.2 percent to $29.86 and Ford added 5.4 percent to $13.57. December U.S. deliveries of cars and light trucks climbed 4.9 percent for GM and 1.6 percent for Ford. The results exceeded analysts’ estimates as they rounded out a year of surprising growth that helped propel the country’s economy. Total U.S. deliveries of cars and light trucks climbed 13 percent to 14.5 million, the highest since 2007, and analysts said they expect the market to exceed 15 million this year.

Macau Casinos

Wynn Resorts Ltd. led a rally in casino companies after gambling revenue in Macau surged almost 20 percent to a record in December. Wynn jumped 10 percent to $120.78. Las Vegas Sands Corp. advanced 14 percent to $51.19.

Avon Products Inc. surged 15 percent to $16.09. The world’s largest door-to-door cosmetics seller was raised to buy from neutral at Bank of America.

Hormel Foods Corp. climbed 12 percent to a record $34.31. The maker of Spam lunchmeat agreed to buy the Skippy peanut-butter business from Unilever for about $700 million to expand further into China.

Family Dollar Stores Inc. sank 9.7 percent, the most in the S&P 500, to $56.65. The second-largest U.S. dollar store chain cut its fiscal 2013 earnings forecast, saying consumers are reluctant to spend on more-profitable discretionary items.

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