A potential breakthrough on a new plan to cut the budget deficit and raise the federal borrowing limit helped buoy Wall Street investors Tuesday, giving stocks their best one-day performance so far this year.
After slumping earlier this summer amid concerns about the debt crisis in Europe as well as the faltering economic recovery in the United States, all the major indicators are now solidly in positive territory for the year.
The Dow Jones industrial average gained 202.26 points Tuesday, climbing 1.6 percent — its largest point and percentage gain since December 2010.
The markets had already been higher on good corporate earnings from companies such as Coca-Cola and IBM when President Obama at a midday news conference hailed a new $3.7 trillion deficit-reduction plan gaining momentum in the Senate. The plan could help Congress meet an Aug. 2 deadline to raise the government’s debt ceiling and avoid a default on government debt.
Stocks leaped higher as Obama spoke. Investors were enthusiastic because “we got some appropriate happy talk out of Washington” on the debt deal, said Phil Orlando, chief equity strategist for Federated Investors in New York.
But the rally could prove tricky to maintain until a deal is finalized, said Matthew Smith, vice president and portfolio manager for Smith Affiliated Capital in New York. Several euro-zone countries continue to struggle under heavy debt loads, and the U.S. economy remains weak, he said.
And until legislation to raise the debt ceiling is finalized, investors will remain nervous, Smith said. Despite Tuesday’s rally, many investors are still sitting on the sidelines waiting for a resolution, he said. “Every day that goes by and a solution doesn’t emerge, you’re going to have increased volatility in the market not less.”
The Dow, an index of 30 blue-chip stocks, closed at 12,587.42 on Tuesday — up nearly 9 percent for the year. The Standard & Poor’s 500-stock index, a broader measure, climbed 1.6 percent to close at 1326.72, while the tech-heavy Nasdaq composite index posted the biggest gains, climbing 2.2 percent, to 2826.52.
Gold prices slipped nearly 1 percent, breaking a 10-day winning streak that sent the commodity to more than $1,600 an ounce. Investors had been buying up the metal, which is viewed as a safe bet during economic turmoil.
IBM reported after the markets closed Monday that its revenue in the second quarter surged 12 percent compared with the same period last year. That helped send its stock up nearly 6 percent Tuesday.
“I think what we saw in IBM’s numbers are more systematic of general positive trends in the economy,” Orlando said.
Coca-Cola gained 3 percent, also on upbeat earnings.
But not all corporate reports were upbeat. Bank of America’s stock slipped about 1.5 percent after it reported a nearly $9 billion loss during the second quarter. Goldman Sachs stock fell about 0.6 percent after it also reported disappointing earnings.
Also lifting markets was a better-than-expected housing report. The Commerce Department said housing starts rose 14.6 percent, to a seasonally adjusted annual rate of 629,000.
That is still far from a healthy market, but investors were clinging to any evidence that the housing sector is starting to stabilize, market analysts said. More critical will be a report later this week on existing home sales, they said.
The most recent housing data “is not going to signal a significant improvement in the market,” Orlando said, also noting that: “We do not have a robust jobs market yet.”