The markets are absolutely exploding on the first day of trading in the New Year. A torrent of investor optimism following a fiscal cliff deal out of Washington is fueling a great start to a year that was foreshadowed by heavy economic uncertainty and political tension.
While we’re by no means out of the woods — Congress still has to tackle the debt ceiling and the sequester — there are still a number of reasons for market participants to celebrate.
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1) Manufacturing: The Institute for Supply Management reported on Wednesday that U.S. manufacturing grew in December following an unexpected month of contraction in November. The PMI grew 1.2 points to 50.7, and investors celebrated by bidding up shares of Caterpillar (NYSE:CAT) as much as 4.2 percent in morning trading. The Dow-component stock is also enjoying an industry upgrade from ISI Group, following channel checks that indicate inventory levels at distributors are reducing, which precedes a long-awaited production increase.
Positive December PMI numbers from Brazil (51.1), China (51.5), and India (54.7) are also fueling optimism for the sector, despite continuing contraction in euro-area PMI, which came in at 46.1 for December.
2) Technology: Tech companies that got beat up at the end of 2012 appear to be winning back the faith of investors who no longer fear a fiscal cliff-induced recession. Shares of Hewlett-Packard (NYSE:HPQ) jumped over 5 percent in morning trading following 2012 declines of over 45 percent. There is speculation that the struggling PC giant will put under-performing business units up for sale.
Shares of Apple (NASDAQ:AAPL) are also beating index gains on Wednesday morning, adding up to 3 percent after closing up 4.43 percent on Monday. Apple was also beat up at the tail-end of 2012, but loyal investors or those who bought the dip could be rewarded for their good judgement if the company continues to deliver industry-defining technology in 2013.
It’s also likely that consumer spending behavior will enjoy some vitality now that worst of the fiscal cliff shadow has been removed. Consumer dollars, previously held in a rainy-day fund, could easily find their way into the pockets of tech companies expected to release must-have devices in 2013, like wearable tech.
3) Financials: Some of the top headlines that came out of 2012 dealt with a series of tremendous financial scandals that rocked the banking industry and generated a huge amount of uncertainty. The financial sector went through dramatic restructuring and layoffs and continues to suffer fallout from the LIBOR rate-fixing scandal. With the 2008 crisis still fresh in Mr. Market’s memory, many investors were hesitant to put their money back into financial stocks.
But with the cliff averted and confidence returning to the financial sector, Dow-component Bank of America (NYSE:BAC) is beating index gains, soaring over 3 percent in morning trading on Wednesday. A strong start to the New Year follows 100 percent gains in 2012, and comes with continued bullish calls from many analysts, such as those at Evercore.
Shares of JPMorgan (NYSE:JPM) also popped as much as 2 percent on Wednesday morning. The bank, which made headlines for losing over $6 billion in the so-called London Whale Trade fiasco, joins Bank of America as a target of speculation regarding the potential divestment of its asset-management division. Ongoing banking reform is expected to do nothing but strengthen the financial industry and increase already attractive returns for their stock holders.
At 11:15 a.m.: DJIA: +1.67%, S&P 500: +1.87%, Nasdaq: +2.17%.