Last week, stock prices on global exchanges rose sharply, thanks to an agreement in Washington to reduce the budget deficit, thereby avoiding the ‘fiscal cliff’ and a recession in the U.S. economy.
On Wall Street, the S&P 500 index jumped 4.6 percent last week to 1,466 points, the highest level since December 2007. The Dow Jones increased by 3.8 percent to 13,435 points, while the Nasdaq index rose 4.8 percent to 3,101 points.
Euphoria reigned on global exchanges on Wednesday as the U.S. Congress passed a law on Tuesday to reduce the budget deficit, thus avoiding automatic cuts in budget expenditures and tax increases totaling around $600 billion. The agreement between Democrats and Republicans will raise the tax rate for wealthier Americans, while any cuts to budget expenditures are postponed for two months. However, by the end of the week, markets calmed down as not all budgetary issues in the U.S. were resolved by the New Year’s agreement.
“We have avoided the ‘fiscal cliff’. The main topic for the next two months will be negotiations between Democrats and Republicans on the upper limit of allowed government borrowing and the reduction of budget expenditures,” says Jim Russell, a strategist at U.S. Bank Wealth Management. Market support was also provided by good macroeconomic indicators, such as the fact that 155,000 new jobs were created in the U.S. in December, which is in line with expectations and indicates stable employment growth. The unemployment rate remained unchanged at 7.8 percent. The market was positively influenced by data from the Institute for Supply Management, which showed that activity in the U.S. service sector rose the most in the last 10 months.
