Markets Undergoing a 'Certainty Rally'
U.S. markets cheered the fiscal cliff bill on Wednesday morning, with all the major market indexes up more than 2% in recent trading. The Dow Jones Industrial Average (DJI) rose 259 points to 13,364 and the S&P 500 Index (GSPC) climbed 30 points to 1,456.
Markets ended the last trading day of 2012 in positive territory on hopes that lawmakers in Washington would agree to a compromise on tax hikes and spending cuts that were scheduled to take effect Jan. 1 – a situation dubbed the "fiscal cliff."
House members voted 257 to 167 late Tuesday in favor of the Senate bill, which increases tax rates on individuals making more than $400,000 and families earning more than $450,000. The bill, which President Obama is expected to sign on Wednesday, also extends unemployment insurance to 2 million Americans for another year and raises the tax rate on income derived from dividends to 20% from 15%.
The market rally will likely continue for a few more weeks until the next major budget deadline approaches, says Yahoo! Finance's Jeff Macke.
"It was a fake cliff and I think what we're seeing is a certainty rally," Macke tells The Daily Ticker's Henry Blodget. "My hope for the markets is that D.C. gets out of the way."
President Obama and Congressional Republicans are likely to butt heads again in March when the federal government hits its debt limit of $16.4 trillion. Congress has the authority to raise the nation's borrowing limit and many Republicans are hinting that they will not approve new debt without a significant deficit-reduction package.
Macke notes that these debt-ceiling fights have rattled markets before but investors are becoming immune to the "sky is falling" situation of the last five years. And that, Macke says, frightens him more than any of the close calls in Washington.
"We're becoming numb to the entire process and… that's when it should be scary," Macke says.
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