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US stock market daily report (January 02, 2012, Wednesday)

Contributed by Millennium Traders

The U.S. House of Representatives approved emergency bipartisan legislation late Tuesday that keeps increased taxes at bay for all but the nation’s wealthiest and puts off a wide range of automatic spending cuts. The House voted 257-167, with 172 Democrats joining 85 Republicans in supporting the measure with 151 Republican voting against the bill. The move to avoid going off the fiscal cliff including steep spending cuts and tax increases on individuals earning at least $400,000 and couples earning at least $450,000 to 39.6%, gave a much needed boost to U.S. stocks into rally mode, on the first trading session of 2013. For those same households, capital-gains and dividend taxes would increase to 20%, from 15% and estate taxes would increase from 35% to 40%. President Barack Obama said he will sign into law the legislation that sets up another fiscal-cliff-type standoff in coming weeks, as the deal focused on raising revenue but bypassed spending reductions to address the U.S. deficit. The legislation reinstates a Social Security payroll tax - with the share of tax to rise two percentage points, to 6.2% from 4.2% discontinuing a tax cut that was passed as a stimulus measure in 2011. On the first $113,700 of income (up from $110,100 in 2012), all wage and salary earners pay that tax. Of federal spending today, Social Security and Medicare combined make up nearly 37%. The bill defers some of America's toughest spending problems including the ballooning cost of health care. By some estimates, it would cut the deficit by nearly $600 billion over 10 years.

On the heels of the news of passage of law to avert the fiscal cliff, the Dow Jones Industrial Average was higher by 273 points in early trading on Wednesday. Worldwide, global markets surged on the positive news from U.S. legislators.

The U.S. government reached its $16.4 trillion U.S. debt ceiling borrowing limit on Monday and Treasury Secretary Timothy Geithner has begun taking what he calls extraordinary measures to delay further borrowing. President Barack Obama repeated Monday night that he will not negotiate around the debt ceiling, saying at the White House: “While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills they have already racked up.”

In a measure meant to guard against extreme volatility, the New York Stock Exchange announced new triggers that would set off a market-wide halt. So-called "circuit breaker" measures call for a pause in trading if the Dow Jones Industrial Average falls roughly 10% in a single day, and tighter restrictions if it drops 20% or 30%. Each quarter, the thresholds are reset to account for changes in the value of the index. Under the new calculation, a 1,300 point drop in the Dow before 2:30pm ET New York time, would trigger the first halt. Declines on the Dow of 2,650 points and 3,950 points would trigger additional pauses. A new circuit-breaker regime is set to replace the existing system on February 4. The new system will see halts in the case of a 7%, 13% and 20% drop in the Standard & Poor's 500-stock index as opposed to the Dow Jones Industrial Average.

The Markit U.S. manufacturing purchasing managers index (PMI) in December reached 54.0, striking a seven-month high but remained below the flash reading of 54.2. "With recent indications that growth is also picking up in other key economies around the world, notably in emerging markets such as China and Brazil, and that the euro zone's economic crisis is easing, U.S. companies should benefit as stronger demand lifts exports in early 2013," said Chris Williamson, chief economist at Markit, in a statement.

According to the Institute for Supply Management index, U.S. manufacturers expanded their business in December after contracting slightly in November. The ISM index rose to 50.7% from 49.5% in November. The ISM's new-orders gauge remained unchanged at 50.3% and the production index fell 1.1 points to 52.6%. The employment gauge climbed 4.3 points to 52.7% to boost the overall ISM index, striking the highest employment reading since September.