Stocks Cheer Fiscal Cliff Deal

The markets are nicely higher this morning, as were markets around the globe after Congress voted to approve a deal to avoid the fiscal cliff.  The bill maintains tax rates for the middle class, while raising rates on households making over $450k.  It also delays the sequester for two months.  But it did not include anything regarding the debt ceiling, so we still need to deal with that.

In economic news, the December ISM manuf. index came in at 50.7, which is above the key 50 level and also up from last month's reading of 49.5.

Asian markets were higher once the news came out.  Hong Kong soared +2.9% to new 52-week highs.  Japan and China were closed for holidays.  The PBOC said that the country is likely to maintain its current policy course.

European markets are also higher across the board, with gains of more than 2%.  The UK's PMI came in above expectations at 51.4, while Germany was below estimates at 46.0.

Commodities are also higher this morning.  Gold prices are near $1691 and trying to get back to the $1700 level.  Oil prices are rallying to $93.31.  Silver and copper prices are both higher by more than 2%.

The 10-year yield also got a boost and is trading higher to 1.84%.

As for the VIX, it has plunged this morning back below the 16 level and has been down more than 12%.  I suspect with the issues still in front of the market, as well as earnings season around the corner that the 15 level in the VIX could act as a floor this time around.

Trading corner: Even though we have been moving to a more conservative posture in our accounts recently, we said that when deal gets done the market will likely rally.  The question is does this rally have legs? Remember that taxes still went up on higher income households, and they went up on the middle class as well.  Today's deal doesn't really highlight the increase in payroll taxes as well as the Obamacare taxes that are coming.  Those will not be pro-growth measures.  I want to see if the market can build on this rally, or if it will prove to be a short burst of enthusiasm with little follow through.

KAM Advisors has short positions in the VIX