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S&P 500 rises most in 2 months amid budget optimism

Anticipation of a compromise to resolve the "fiscal cliff" crisis led to a sharp rally in stock prices in Monday's session.

The Dow Jones Industrial Average gained 207.65 points to close at 12,795.96, the biggest one-day gain in more than two months. The Nasdaq Composite Index rose 62.94 points, an increase of 2.21 percent, to 2,916.07, and the S&P 500 Stock Index was up 27.01 points to 1,386.89.

President Barack Obama, in comments made during his trip to Asia, said he sees the possibility that Congress will agree to a plan to avoid an estimated $600 billion in tax hikes and spending cuts scheduled to go into effect at the start of 2013. The markets also reacted to a positive report on existing home sales and prices.

Oil rose sharply on increased tensions in the Middle East. Crude closed at $89.80 a barrel, up $2.36. Gold also moved higher, up $19.70 to $1,734.40 an ounce.

Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) and Newmont Mining Corp. (NYSE: NEM) rallied more than 1.4 percent to pace gains in commodity producers amid Middle East tension. Cisco Systems Inc. (Nasdaq: CSCO) increased 1.7 percent as it agreed to buy closely held Meraki Inc. for $1.2 billion.

Lowe’s Cos. (NYSE: LOW) surged 6.2 percent after the home-improvement retailer posted profit that beat estimates. Apple Inc. (Nasdaq: AAPL) and Amazon.com Inc. (Nasdaq: AMZN) added at least 1.9 percent.

“This change and transition in taxation is much more important for equity allocations going forward than what people realize,” said Michael Shaoul, chairman of New York-based Marketfield Asset Management, which oversees $3.5 billion. “The U.S. economy looks pretty good. Earnings are OK. As long as Congress doesn’t absolutely wreck it, it will be fine.”

Obama met with senior Democrats and Republicans on Friday for talks to avoid $607 billion of automatic tax increases and spending cuts that, if allowed to come into force, might push the country into a recession next year.

“I am confident we can get our fiscal situation dealt with,” Obama said Sunday at a news conference in Bangkok, where he began a three-nation Asian trip.

Freeport-McMoRan, the biggest publicly traded copper producer, added 4.1 percent to $38.28. Newmont Mining, the largest U.S. gold producer, added 1.5 percent to $46.79. Occidental Petroleum Corp. (NYSE: OXY) rose 2.2 percent to $75.46.

Cisco rose 1.7 percent to $18.30. The world’s largest maker of computer-networking equipment agreed to pay $1.2 billion for Meraki, adding technology that helps businesses manage Wi-Fi networks remotely and expanding its lineup of products for midsized customers.

Lowe’s gained 6.2 percent to $33.96. The company, headed by Chief Executive Officer Robert Niblock, boosted sales of generators, chainsaws and cleaning supplies in the Northeastern United States before Sandy struck on Oct. 29, destroying homes and leaving millions without power. Consumers also spent more as the U.S. housing market improved.

Home Depot Inc. (NYSE: HD), the biggest U.S. home-improvement retailer, gained 2 percent to $63.33.

Apple, the world’s most valuable company, gained 7.2 percent to $565.73, for the biggest advance since April.

An analyst at Topeka Capital Markets said the shares are undervalued after retreating from a record high in September. Amazon, the largest online retailer, gained 2 percent to $229.71.

Tyson Foods Inc. (NYSE: TSN) added 11 percent to $18.72. The largest U.S. meat processor declared a special dividend and posted fiscal fourth-quarter earnings and sales that exceeded analysts’ estimates after prices increased.

The post-election rout in U.S. stocks has driven the S&P 500 down so far that it would have to advance 26 percent to reach the valuation of bull markets since John F. Kennedy was in the White House.

Investors have seen $806 billion erased from the value of American equities since Obama was re-elected Nov. 6 in the biggest decline since May.

The combination of falling stocks and rising profits as the economy recovers has left the S&P 500’s price-earnings ratio below the ending level of eight of the nine bull markets since 1962 and beneath the average of any since Ronald Reagan was in power.

Bears say the 4.8 percent drop in the S&P 500 and valuations show investors are losing confidence that Congress and Obama will reach a budget compromise that would keep the recovery from stalling.
Bulls, including the top strategists at six Wall Street firms, say that the declines are another reason to buy and that stock prices are bound to improve as earnings increase.

Bloomberg News contributed to this report.

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