Dow +43.85 at 13435.21, Nasdaq +1.09 at 3101.66, S&P +7.10 at 1466.47

The S&P 500 gained 0.5% to punctuate a week which saw the index climb over 4.0%. Today's advance was notable as it took the benchmark average to its best close since December 2007. The weeklong rally arrived after Washington lawmakers were able to avoid the fiscal cliff by agreeing to a tax plan. However, it should be noted that the country is nearing the debt ceiling, which sets up the stage for another lengthy debate during the first quarter of the year.

Today's session saw some notable moves as the SPDR Financial Select Sector ETF (XLF 17.05, +0.20) gained 1.2% and settled at its highest level since February 2011.

Elsewhere, the Dow Jones Transportation Average advanced 1.2% and saw its highest close since July 2011.

Also of note, the tech sector was the only declining space in the S&P 500 after Apple (527.00, -15.10) slid 2.8%. The weakness followed comments from Deutsche Bank's Japan unit which believes the company will report disappointing end-of-year sales. The weakness spilled over to several Apple suppliers as Cirrus Logic (CRUS 28.32, -1.03) and Skyworks Solutions (SWKS 20.95, -0.54) lost 3.5% and 2.5% respectively.

Next week, investors will turn their attention to fourth quarter earnings as Alcoa (AA 9.26, +0.19) is scheduled to kick-off the earnings season after Tuesday's close. The Capital IQ consensus expects the aluminum producer to report earnings of $0.07 on $5.64 billion in revenue.

On Monday afternoon, we published a review of the global market performance in 2012. For those who missed it, we would like to revisit the report and look back at the past year:

2012 proved to be a positive year for world equities despite a number of macroeconomic challenges. Markets across the globe registered strong gains as Germany's DAX and Greece's ASE General Index both added over 30%. Domestically, the S&P 500 registered a solid 13% gain, and was slightly outperformed by the Nasdaq and Russell 2000. The renewed worries regarding the weakening fundamentals of the Eurozone persisted into the summer and weighed on market sentiment. However, late-summer efforts from the European Central Bank and the Federal Reserve alleviated some of the fears, and propelled the markets to a strong second-half performance. The rally was cut short after the election, when the market focus turned to the budget debate, which lasted into the New Year. Below we summarize some of the key developments, which contributed to market sentiment.

Central Banks Maintained Accommodative Policy Course, With Diminishing Returns
Taking a look at past QE operations from the Fed, the first QE program saw the S&P gain nearly 70%. During QE II, the index gained 23%. So far, following the announcement of QE III--which was unveiled in September of 2012--the S&P has lost 4% as concerns over the Fiscal Cliff weighed. Taking a look at Fed's actions in 2012:

• January 25th - The Fed said it would keep rates low through 2014. 
• June 20th - The FOMC extended its 'operation twist' program until the end of 2012.
• September 13th -- The Federal Reserve announced its decision to increase policy accommodations by purchasing additional agency mortgage-backed securities at a pace of $40 bln per month.
• December 12th -- The Fed announced ‘Operation Twist' will be replaced by a Treasury purchasing program with an initial rate of $45 billion per month. The key interest rate was expected to remain at exceptionally low levels until a target unemployment rate of 6.5% is reached.

Looking ahead to 2013, the Fed voters will change at the end of this year and will become slightly more dovish overall.

• Incoming voters include, Charles Evans, Eric Rosengren, James Bullard, and Kansas City Fed's Esther George.
• Others rotating off include Cleveland Fed President Sandra Pianalto, Atlanta Fed President Dennis Lockhart and San Francisco Fed President John Williams.

Politics Added Volatility to Markets
U.S. Presidential Election

• Key indices rallied into the election and the S&P 500 advanced nearly 1% on Election Day, only to fall 6% in the two weeks following.
• The loss of optimism post-election was attributed to questions whether a Democratic president and a split Congress can strike a budget deal to avoid going over the fiscal cliff. 

Fiscal Cliff Arrived at Year's End 

• Following the U.S. presidential election, the attention turned to the budget debate. The automatic spending cuts and tax hikes scheduled to take place if no budget agreement is reached became known as the 'Fiscal Cliff.'
• The markets maintained their upward bias through the bulk of the debate, but the final week of the year resulted in a sell-off as the likelihood of a timely compromise diminished.

U.S. Stocks Led by Homebuilders and Financials
Housing was a bright spot in the broader economy; as such homebuilders saw robust returns and the SPDR S&P Homebuilders ETF (XHB) surged 53%.

• Among major individual builders, Lennar (LEN, +93%), PulteGroup (PHM, +181%), D.R. Horton (DHI, +53%), Standard Pacific (SPF, +126%) all saw outsized gains.
• Despite the observed uptrend in housing data, it should be noted that housing starts, new, and pending home sales remain below historical averages entering 2013. In addition, foreclosure rates remain elevated.

Financials Outperformed Despite Debt Worries and some notable trading issues

• Financial shares beat the market with the XLF ETF gaining 24% for the year versus a 13% gain in the S&P 500. The better than expected recovery that we discussed in housing contributed to the gains. The financial sector saw strong returns despite a handful of challenges.
• JP Morgan London Whale Trade: After the bell on May 10, the U.S. financials were rattled by the news indicating JPMorgan Chase (JPM) had significant mark-to-market losses in its synthetic credit portfolio. It took nearly 5 months for JPM to recover. 
• Knight Capital (KCG) Trading Glitch and Sale: On August 1st, a trading glitch at KCG caused nearly 150 stocks to behave erratically. Just before the end of the year, KCG and GETCO Holding announced a merger at $3.75 per share in cash. Knight Capital (KCG) shares finished the year lower by 71%.

Investors Focused on the Largest Tech Stock - Apple

• With years of strong performance and solid fundamentals, Apple (AAPL) was favored by investors in early 2012, and it had become a top hedge fund holding.
• Apple surged nearly 65% through the first three quarters of the year, and marked its all-time high in the $705 area.
• After climbing to its all-time high, the stock tumbled 30%, but still managed to finish the year 30% higher.
• The notable slide came amid numerous factors including disappointing product launch, stepped up competition and the once-rich profit margins have compressed through the year.

European Markets Saw Strongest Overall Performance
Despite continued uncertainty and ongoing debt problems, broad Euro region equity averages returned more than 15% this year.

The spring reignited worries regarding Greek solvency. Despite the mid-summer uncertainty, the Greek ASE returned 33%, and was the best performing global index.

Concerns about Spain followed Greece; Spain's IBEX fared much worse with a 5% loss on the year.

• The country's heavily-strained banking system caused the 10-yr benchmark yield to cross above 7.00% before a bank recapitalization package was approved by the European Central Bank.
• The approval of the bank recapitalization combined with ECB's Outright Monetary Transactions helped ease the pressure on yields, which slipped back below 7.00%.

Asian Region Fared Well With Strength in India (+31%), Japan (+22%) and Hong Kong (+23%)
In Japan, Shinzo Abe was elected prime minister on the platform of promoting economic growth and bringing the country out of its economic malaise.

Mr. Abe had previously held the post in 2006. The country's new prime minister vowed to defeat inflation and promised to increase government spending. The Japanese market cheered the plans and the Nikkei registered the bulk of its gains in the final six weeks of the year.

Looking Ahead to 2013
As mentioned in Briefing.com's Market View (published 12/17/2012), A year has made a lot of difference for equity investors in a good way. Unfortunately, we are not as hopeful about the market outlook entering 2013. Once again, we can point to three factors in particular driving our perspective:

1. Economic growth is decelerating
2. Fiscal austerity is just beginning in the US and there is too much complacency about its outcome
3. Earnings growth estimates are too high

Those factors may not conspire to produce a negative return for the stock market in 2013, yet they present real obstacles for achieving another strong gain and raise the importance of managing against downside risk. Fiscal austerity will bite, as we have seen in the eurozone, political friction will persist both here and abroad, and earnings growth is unlikely to measure up to currently high expectations.

2013 is loaded with potential to be a fundamentally disappointing year. That might not translate directly in terms of stock market returns given the Fed's influence, yet investors should take care nonetheless to manage against downside risk.

Index	Started Week	Ended Week	Change	% Change	YTD %
DJIA	12938.11	13435.21	497.10	3.8	2.5
Nasdaq	2960.31	3101.66	141.35	4.8	2.7
S&P 500	1402.43	1466.47	64.04	4.6	2.8
Russell 2000	832.10	879.15	47.05	5.7	3.5

Dow +43.85 at 13435.21, Nasdaq +1.09 at 3101.66, S&P +7.10 at 1466.47 The S&P 500 gained 0.5% to punctuate a week which saw the index climb over