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Fiscal deal drives stock feeding frenzy

David Russell (david.russell@optionmonster.com)

Equities are rallying strongly on the first day of 2013 after politicians in Washington struck a deal to avert fiscal crisis in the United States.

S&P 500 futures are indicated to open higher by more than 1.5 percent, amid gains of more than 2 percent in most European markets. Asian stocks also rallied in the overnight session, led by a rally of almost 3 percent in Hong Kong.

Congress passed a compromise bill yesterday that will prevent most big tax increases and spending cuts in the near term. If lawmakers hadn't acted, the so-called fiscal cliff would have subtracted hundreds of billions of dollars from gross domestic product and threatened to send the economy into recession.

Resolution of the crisis lets investors focus on other developments that are more positive, such as accelerating growth in China, American employment data later this week, and corporate earnings reports later this month.

Equities spent the last three months consolidating in a range after a surprise third-quarter rally. The S&P 500 recently found support at the key 1400 level, marking yet another higher low since it began climbing in March 2009. Interestingly, segments including transports, emerging markets, and small caps started outperforming at the same time that the SPX moved sideways, which suggests that risk appetite has been quietly building.

Currencies and commodities are painting a unanimously bullish picture as well. The euro, Australian dollar, and Canadian dollar are all higher, while the safe-haven Japanese yen is getting hammered across the board.

Oil, gold, and copper are up by about 1 percent. Silver is up by almost 3 percent and most agricultural foodstuffs are gaining.

Among individual stocks, Bank of America and Apple are both indicated to open higher by more than 3 percent. Cisco Systems, Goldman Sachs and Facebook are up by more than 2 percent. Energy, materials and small caps are especially strong amid increased confidence toward the economy.

Zipcar is surging by 48 percent after agreeing to a $500 million buyout at the hands of Avis Budget Group.

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