After Washington announced a fiscal cliff deal Tuesday, investors raced into stocks and other risk-on trades, relieved that the country wasn't going to tumble over the dreaded fiscal cliff.
"You've just removed a huge worry from the market," Jonathan Samson, chief investment officer at Samson Capital Advisors told The New York Times.
In response, the Dow finished the first trading day of 2013 up 308. 41 points, or 2.35%. The gains also propelled the benchmark index to its highest close since Sept. 14, 2012. Volume was heavy with more than 4.5 million shares changing hands on the Big Board.
The Standard & Poor's 500 Index added 36.23 points, or 2.54%, and the tech heavy Nasdaq tacked on 92.75 or 3.07%.
Gold gained $13 to close at $1,688.80; silver added 78 cents to $31.01, and oil gushed higher by $1.30 to finish the day at $93.12.
But by 10 a.m. today, the Dow had slipped more than 30 points, or 0.23%.
Some Wall Street analysts were quick to warn that the fiscal cliff euphoria will die out by next week, and that yesterday's rise was nothing more than a short-term relief rally.
"Considering there are so many headwinds facing the economy, including the debt ceiling negotiation in 60 days, the smart money knows the bullish sentiment will be short-lived. The lesson for investors here is 'buyer beware,'" Todd Schoenberger, managing partner at LandColt Capital wrote in an email to FOX Business Network.
The Threats Weighing on a Stock Market Rally
Even though a fiscal cliff deal satisfied investors this week, the biggest threats to a U.S. economic recovery – and continued market rally – still remain.
Money Morning's Chief Investment Strategist Keith Fitz-Gerald on a call with CNBC Asia Tuesday explained how Washington didn't actually resolve anything, but simply delayed the most dangerous economic hurdles.
"Once again Washington is kicking the can down the road. While it's already being played up by both parties as an example of bipartisanship, it's really a load of hooey. The bill merely puts off decision for yet another round of fiscal follies a few months from now," said Fitz-Gerald.
See Keith Fitz-Gerald's full analysis on "What the Fiscal Cliff Deal Means for Investing in 2013" here.
Congress has about two months' time to reach agreement on the debt ceiling and budget cuts, and the fights will be nasty.
As Jim Russell, senior equity strategist for U.S. Bank Wealth Management in Cincinnati, told Reuters, "the fur will be flying."
In the meantime, expect volatile markets until Washington makes progress on the debt ceiling.
"It's good that they struck a deal, but there's a harder fight in the next six to eight weeks, and it's tough to imagine the market doesn't stay choppy until we get past the debt ceiling debate," Richard England, portfolio manager for Atlanta Capital Management told The Wall Street Journal. "That doesn't mean the market has to go down in the interim, but maybe it doesn't go up much either."
Related Articles and News:
- Money Morning:
Investing in 2013: Best Bets in an Uncertain Economy
- Money Morning:
Stocks to Buy in 2013: Don't Miss the New Developed Market Leaders
- Money Morning:
Stock Market Today: Fiscal Cliff Deal Leads to Rally
- Washington Post:
Stocks rally more than 2% on fiscal cliff deal
Wall St starts new year with a bang after "cliff' deal
- The New York Times:
Stocks Jump 2.5% on Fiscal Deal
- The Wall Street Journal:
U.S. Stocks Soar After Budget Deal, Led by Tech Small Caps
- FOX Business Network:
Relief Rally: Dow Zooms 300 Points Higher on Fiscal Cliff Fix