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How will the Dow respond to US budget deal?

Jan. 1, 2013

The first day of 2013 is in the history books, but the first day of trading on Wall Street awaits us.

With reports out of Hong Kong indicating early gains of as much as 1.9 percent on the Hang Seng Index, and the New York Times reporting that stock indices in Australia and Singapore saw early gains of 1.3 percent, the US markets may well be in for a stellar day on Wednesday.

Where will the Dow Jones Industrial Average wind up at the end of trading?

The Dow closed at 13,104.14 on Dec. 31, some 500 points lower than the 2012 closing bell high of 13,610.15 on Oct. 5. The market surged that day in the wake of improving unemployment numbers released by the Bureau of Labor Statistics.

The Oct. 5 high also marked the best closing bell numbers in five years, eclipsing pre-financial meltdown numbers and coming in less than 500 points away from the Dow’s all-time high of 14,164.53, reached on Oct. 9, 2007.

Commentary

Don’t be surprised if the Dow closes higher Wednesday than it did at its 2012 peak.

For that to happen, it would have to close some 507 points higher than it closed on Monday. The Dow has gained 500 points or more on three occasions, all of them coming in October or November of 2008 in the wake of the financial meltdown that preceded the economic conditions many have referred to as “The Great Recession.”

All the speculative energy that had nowhere to go while politicians tried to reach a budget agreement will likely be channeled into a day of bullish activity on Wall Street on Wednesday. This could be one of the biggest weeks in Wall Street history, and depending on how the markets react after the opening bell Wednesday, surpassing the 14,000 mark by week’s end may not be out of the question.

What this could mean beyond the short-term exuberance at having avoided the so-called fiscal cliff remains to be seen, and the glow of having reached a deal will likely fade later in the month. Few economists would venture to say that the budget deal has somehow revived the US economy. For market junkies who thrive on seeing big single-day gains, however, the closing bell just might bring sweet music to their monetary ears.

Sources and Resources:

http://www.fool.com/investing/general/2012/10/09/looking-back-at-the-dows-all-time-high.aspx

http://www.usatoday.com/story/money/markets/2012/10/05/sept-jobs-markets/1613559/

http://www.nytimes.com/2013/01/03/business/global/03iht-asiamarkets03.html

http://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average

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