Stocks surge on hopes for budget deal, Europe

U.S. stocks shook off their post-election slump Monday and recorded big gains. Investors appeared more optimistic about a deal to avoid a federal budget crisis and were encouraged by a pair of corporate earnings reports.

The Dow Jones industrial average surged 208 points, or 1.6 percent, to close at 12,796. The Dow had previously slid 5 percent since Election Day. The Standard & Poor's 500 index rose 27 points, or nearly 2 percent, to 1,387. The Nasdaq composite average gained 63 to 2,916.

President Barack Obama and leaders in Congress are in talks to avoid going over a "fiscal cliff" on Jan. 1, when tax increases and mandatory government spending cuts are set to take effect.

"It is quite clear that both sides want to come to a compromise and that a reasonable compromise is available," said David Kelly, chief global strategist for J.P. Morgan Funds, in a note to clients.

• U.S. budget hopes shore up world markets
• President, Congress meet to avert "fiscal cliff"
• "Fiscal cliff," all the time

Still, most analysts expect trading to remain volatile until lawmakers can convince the markets that a solution is in the works.

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How much of a threat is the "fiscal cliff"?

Randy Frederick, managing director of active trading and derivatives at the brokerage Charles Schwab, said he "wouldn't be surprised to see this given back up in a day or two."

A pair of strong corporate earnings reports also boosted Wall Street. Lowe's said its third-quarter profit surged 76 percent. That followed a strong report from Home Depot last week. Lowe's rose $1.89, or 6 percent, to $33.87.

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The deal to avoid the fiscal cliff

Tyson Foods, the country's biggest meat company, beat analysts' expectations for its quarterly earnings. Tyson rose $1.52, or 9 percent, to $18.40. Materials stocks soared, supported by the latest sign that a recovery in the housing market has stabilized.

The National Association of Realtors said sales of previously occupied homes in the U.S. rose in October, helped by a stronger job market and record-low mortgage rates. The pace of sales is roughly 11 percent higher than a year ago.

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The possible cost of the fiscal cliff

Stocks fell in each of the past four weeks as traders fretted about the possibility that lawmakers will fail to prevent the spending cuts and tax increases from taking effect.

The indexes turned positive Friday afternoon, breaking a four-day slump, amid signs that Obama and Congress were prepared to cede long-held bargaining positions. House Speaker John Boehner and Senate Minority Leader Mitch McConnell both said they had offered higher tax revenue as part of a deal.

Monday's rally put the Dow on track for its biggest one-day increase since Sept. 13.

The S&P 500, meanwhile, is trading near a key technical level, Frederick said. For nearly two weeks, the index has closed below its 200-day average, which on Monday stood at 1,382.

It surpassed that marker Monday afternoon. If the gain holds, Frederick said, that might signal more buying. Technical levels are historic averages and other indicators used by some traders to decide if stocks are a good value.

Volume was light on the first day of a holiday-shortened trading week. The market is closed on Thursday for Thanksgiving and will close early Friday.

Indexes in France, Germany and Britain closed up 2.5 percent or more as traders monitored Greece's quest for its latest round of bailout cash.

Greece needs international lenders and the International Monetary Fund to release the money so that Greece can meet upcoming payments to creditors. Trading in Europe remains volatile as the region has entered recession and is struggling to solve the broader debt crisis.

Finance ministers from nations that use the euro will meet Tuesday. Later in the week, leaders will convene to discuss the European Union's budget for the next few years.

Traders also followed developments in the Middle East as conflict between Israel and Hamas flared. Concerns about instability in the region and hopes for a U.S. fiscal pact pushed the price of oil up nearly 3 percent to $89.34 in afternoon trading.

Earlier, Asian markets rose more modestly.

The yield on the benchmark 10-year Treasury note rose to 1.61 percent from 1.58 percent late Friday, a sign that traders are selling low-risk investments. A bond's yield rises as its price falls.

The market's longer-term direction will likely hinge on U.S. leaders' ability to attack the fiscal challenge between Thanksgiving and Christmas, Frederick said. "If they can put some sort of a plan together, or make us believe they have a plan, or at least that there's some cooperation going on there, that could be a real boost for the market," he said.

Among the big companies making news, Intel fell after its CEO of 40 years announced that he will retire in May. The stock declined 7 cents to $20.12, making it the only falling stock among the 30 that make up the Dow average.

Diamond Foods hit its lowest price since September 2006 after an analyst cut the snack food company's rating and price target. Diamond restated two years' worth of financial results last Wednesday, effectively wiping away $56.5 million in profit from its books. Diamond fell $1.75, or 12 percent, to $13.38.

Advanced Micro Devices Inc. rose after an analyst said that the stock could see an "early 2013 bounce." He said investor concerns about the company's solvency were overblown and caused traders to oversell. AMD rose 8 cents, or 4 percent, to $1.94.

[mjvwsr]

Fiscal Cliff - lets do it

[antoniof123]

Don't you love that guys expression he looks like he is saying well boys it is almost time to put the screws to the American people again. Just a little longer and we can crash the stock market again and reap the benefits from the 401k's again.

[taxchurches]

This story and dozens like it prove conclusively that partisan bickering, right-wing obstructionism and fear-mongering are having a tangible and damaging effect us all. The GOP is destroying this country over a perpetual case of sour grapes. Under Clinton we had eight years of constant fabricated scandals, none of which amounted to anything, and under Obama so far we've had four years of absurd accusations about birth certificates, hidden agendas and overt disrespect for the office of president. The Republicans, as Obama's re-election demonstrates, are doing themselves harm as well, with their sulky child act. Enough is enough. Tax the rich, cut the crap, and stop ******* up our lives.

[tsigili]

That optimism isn't likely to pan out.

[RepealObamacare]

I started a petition on white house . gov asking that future legislation must be enacted a year in advance to avoid this from happening again in the future. Please join in

https://petitions.whitehouse.gov/petition/be-required-enact-tax-reform-legislation-one-year-advance-effective-date-and-remain-enforce-two/CY1JsKF7

[hypnotoad72]

If only our government didn't start teetering the system 30+ years ago:

http://forward.com/articles/166154/americans-and-our-stuff/?p=all
(which tries to shift more blame on Reaganomics, which is somewhat unfair as the article does (loosely) reflect inflation of the latter-end of Carter's era, which also led to unemployment and other issues...)

Of course, these can't be ignored either:

http://thinkprogress.org/politics/2011/04/14/158424/republican-leaders-debt-limit-hypocrisy/

http://www.ontheissues.org/SenateVote/Party_2005-63.htm

http://www.salon.com/news/opinion/joe_conason/2009/03/27/deficits

http://www.salon.com/news/politics/war_room/2011/06/27/eric_cantor_conflict_of_interest/index.html

[hypnotoad72]

Not to mention artificial wage devaluation by corporations, via using illegals and engaging in H1B system fraud... and how offshoring of jobs also means less revenue for government, which in turn - amongst other things - means an increased deficit. But I've posted on those issues with more detail rather some time ago...