It is the start of 2013, but the equity market partied yesterday like it was the start of 1999. The Nasdaq Composite surged 3.1% while every other major average gained at least 2.3%. The biggest winner of the day, though, was the Philadelphia Semiconductor Index, which rallied 4.1%.
The catalyst for the impressive rally was the news that Congress passed a deal that will prevent the economy from feeling the full force of falling over the fiscal cliff. It was only a half deal really since it did not include any meaningful spending cuts or entitlement reform.
Nonetheless, the deal that got done took a worst-case recession scenario and reduced it to a bad case of lower economic growth. Consequently, the equity risk premium came down in response to the tax rate compromise since bad is better than worse. It was a relative assessment, yet all things are relative these days for equity market participants.
On top of the fiscal cliff relief, the market also benefited from new money that typically gets put to work by institutions at the beginning of the year. Throw in some short covering and, well, one has the makings of a sizable and broad-based rally.
Today, the market looks poised to consolidate some of the recent gains at the start of trading. The S&P futures are down two points and are trading 0.2% below fair value.
This is not surprising. There is often some profit taking following big moves like the one seen yesterday. Really, though, it is more than just yesterday. In the last two sessions alone, the S&P 500 has increased 4.3%.
That move should ensure that we will be able to look back on the Santa Claus rally period -- the last five trading days of the year and the first two trading days of the new year -- and say that Santa indeed paid a visit to Wall Street.
Consumers, meanwhile, were not visiting all retailers in the same jolly fashion. December same-store sales results are mixed. Costco (COST) was a notable winner with a 9.0% jump in same-store sales. Macy's (M) and Kohl's (KSS) also reported same-store sales increases, yet both retailers issued fourth quarter earnings guidance that is below current consensus estimates.
Better news today came out of the ADP Employment Change report for December, which showed an estimated 215,000 jobs (Briefing.com consensus 140,000) were added to private sector payrolls, with medium-sized and large businesses leading the hiring with increases of 102,000 and 87,000, respectively. The services sector provided the bulk of the new jobs (187,000).
Separately, initial claims for the week ending December 29 rose by 10,000 to 372,000 (Briefing.com consensus 365,000) while continuing claims increased 44,000 to 3.245 mln (Briefing.com consensus 3.200 mln).
The futures market moved off its morning lows in the wake of the ADP report, which has set a hopeful tone ahead of tomorrow's Employment Situation report for December. The Briefing.com consensus estimate for nonfarm payrolls stands at 150,000.
Auto and truck sales data for December will be released throughout the day. Good news is expected to be heard.
The FOMC Minutes for the December meeting will be released at 2:00 p.m. ET. The market isn't likely to react much to the minutes given the insight provided by the Fed Chairman at his press conference following the meeting.
Finally, the 113th Congress will be sworn in today while many voters will undoubtedly be swearing about the performance of the 112th Congress.