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Stocks gain on optimism that a budget deal is near

Dec. 19, 2012 @ 12:00 AM

NEW YORK -- Stocks climbed on Wall Street Tuesday, pushing the Standard and Poor's 500 to its highest level in two months, on optimism that lawmakers are closing in on a budget deal that will stop the U.S. from going over the "fiscal cliff" at the beginning of next year.

The Dow Jones industrial average rose 115.57 points to 13,350.96, its biggest one-day gain in almost a month. The Standard & Poor's 500 rose 16.43 points to 1,446.79, its highest close since Oct. 18. The Nasdaq composite rose 43.93 points to 3,054.53.

House Speaker John Boehner told reporters he remains hopeful that a fiscal cliff compromise can be reached, but says President Barack Obama has yet to offer a balanced deficit-cutting plan. Boehner said Obama's latest offer for $1.3 trillion in tax increases over the next decade with $850 billion in spending cuts is not enough. The White House says that President Obama has moved halfway to meet Boehner on a budget deal.

"People are cheering the prospect for some compromise in Washington right now," said Joe Costigan, director of equity research at Bryn Mawr Trust Co. "At the moment there is some pretty good news and the market is reacting favorably to it, but the deal isn't done yet."

Stocks slumped after the presidential election Nov. 6 on concern that a divided government would struggle to reach an agreement before Jan. 1, when a series of series of tax increases and government spending cuts are scheduled to take effect if no deal is reached. Those measures could push the U.S. back into recession. The S&P 500 has since recouped all of those losses.

Some investors say stocks are already pricing in too much optimism. Any deal, while ensuring that the economy avoids the full impact of the "fiscal cliff," will still involve higher taxes and less government spending. That will be a drag on economic growth, said David Wright, a managing director and co-founder at Sierra Investment Management in Santa Monica, Calif.

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