NEW YORK (USA Today) - Stocks rallied strongly Monday on optimism that a deal to avoid the so-called "fiscal cliff" can be reached and on strong quarterly earnings from corporations.
The Dow Jones industrial average ended up 207.65 points, 1.7% to 12,795.96. The broader Standard & Poor's 500 index finished up 27.01 points, or 2% to 1,386.89. The tech-laden Nasdaq composite index closed up 62.94 points, or 2.2%, to 2,916.07. The rally impacted the bond market, where the yield on the 10-year U.S. Treasury note jumped to 1.61%. When a bond's yield rises, the price falls.
STORY: Should you sell stocks to avoid 'cliff' tax hikes?
A strong reading on homebuilder sentiment, which rose to a 6-year-high, also gave investors a reason to get back into the stock market.
After falling for nearly two weeks on fears divided lawmakers wouldn't get a deal done in time, stocks soared Monday amid renewed hopes that Democrats and Republicans are willing to work together and hatch a plan to avoid damage to the economy that would be caused by a host of mandated tax hikes and government spending cuts set for Jan. 1 unless Congress acts.
Signs of compromise lifted sentiment on Wall Street, Andrew Busch, a policy analyst at BMO Capital Markets, wrote in a morning research note to clients. He cites "constructive" comments Friday from President Obama and Republican House Speaker John Boehner.
"This led to a sharp turnaround back to a risk-on trading environment," Busch wrote. "It also reflects how strongly correlated the market is toward positive or negative news on the cliff."
Busch warns that the process is just beginning and a strong risk of disagreement still remains.
Randy Frederick, managing director of active trading and derivatives at Charles Schwab, said the rally is due largely to the market becoming "oversold"since Election Day and that a bounce was due. He, too, warns of more volatility ahead.
Shares of Apple (AAPL) jumped 7.4% to finish Monday at $566.44 a piece. Thecompany's stock is down 20% from its 52-week high of $705.07.
Hewlett-Packard (HPQ) shares surged Monday afternoon, ending the day up 3.2% to $13.27 a piece, in advance of its fourth-quarter earnings report due out Tuesday after the market closes.
Intel's shares opened lower, 15 minutes late because the announcement came just before the opening bell that CEO Paul Otellini said he was retiring in May. Intel (INTC), the world's largest chip-maker, has not selected a successor. The shares ended Monday up 7 cents, 0.35%, to $20.26 each.
Home improvement company Lowe's (LOW) said Monday that its third-quarter profit surged 76%. Its shares closed Monday up $1.97, or 6.1%, to $33.95.
Tyson Foods (TSN), the country's largest meat company, easily topped Wall Street expectations Monday for its fourth-quarter earnings. The company's stock soared $1.85, or 11%, to end at $18.73 each.
World stock markets also rose Monday, registering optimism after negotiations late last week between President Obama and leaders of Congress. Obama met with the top leaders of the House and Senate Friday.
Economists have been warning of the consequences if no action is taken. The spending cuts and higher taxes - plus the expiration of extended unemployment benefits - would mean that $671 billion is sliced out of the American economy next year. That's enough to throw the world's biggest economy into a recession.
European stocks ended the day higher. Britain's FTSE 100 rose 2.4% to 5,737.66. Germany's DAX 30 index gained 2.5% to 7,123.84. France's CAC-40 index advanced 2.9% to 3,439.58.
There are reports that Greece's request for $40 billion more in bailout funding has been approved. And investors looking for good deals following a global stock market slump that followed the U.S. presidential election helped push Asian stock markets higher.
Hong Kong's Hang Seng added 0.5% to 21,262.06 and South Korea's Kospi rose 0.9% to 1,878.10. Australia's S&P/ASX 200 gained 0.6% to 4,361.40. Mainland China's Shanghai Composite Index inched up 0.1% to 2,016.98. The smaller Shenzhen Composite Index rose marginally to 800.84.
"Because Hong Kong dropped for two weeks, maybe there is some bargain hunting," said Linus Yip, strategist at First Shanghai Securities in Hong Kong. He said that the budget negotiations in the U.S. are occupying the spotlight in the near term, but the ultimate issue is the state of the global economy.
Investors were particularly concerned by data last week showing U.S. industrial output falling 0.4% in October and the 17-country euro area falling into another recession.
The yen's recent weakness helped boost Japan's Nikkei 225 and its heavy orientation toward exporting companies. The index in Tokyo jumped 1.4% to close at 9,153.20, its highest close since Sept. 19.
A weak yen reduces the cost of Japanese products overseas, and that helps companies whose survival depends on sales beyond their home turf.
Benchmark oil for December delivery ended up $1.22 to $86.67 per barrel in electronic trading on the New York Mercantile Exchange. The price of gold jumped $17.70, 1%, to finish at $1,736.60.
In currencies, the euro rose to $1.2814 from $1.2727 late Friday in New York. The dollar was flat at 81.38 yen.