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Surprise -- the stock market is roaring higher on speculation that a fiscal deal compromise may be reached. The markets staged their biggest rally so far this month as House Speaker John Boehner and President Barack Obama met behind closed doors to discuss a potential fiscal cliff compromise. On the day, the broad-based S&P 500 (SNPINDEX: ^GSPC ) jumped 16.78 points (1.19%) to finish at 1,430.36.
As you might expect, money center banks and homebuilders, two sectors intricately tied to the health of the economy and waiting on pins and needles for a fiscal cliff decision, are rallying in anticipation of a deal.
In the banking sector, Bank of America (NYSE: BAC ) zoomed nearly 4% higher to a 17-month high, while Citigroup (NYSE: C ) also clocked in at a new 52-week high. A fiscal cliff deal in this sector means good earnings visibility and a minimal likelihood that poorer quality loans still in their loan portfolios would move over to the non-performing asset category.
The housing sector was led higher by PulteGroup (NYSE: PHM ) and D.R. Horton (NYSE: DHI ) , which both rose by approximately 5%. Homebuilders are anxiously waiting to see if a reduction in mortgage interest deductions is included in any fiscal compromise, and whether or not it will hurt future sales.
If you were looking for the darkest cloud on a sunny day, then look no further than Peabody Energy (NASDAQOTH: BTUUQ ) which fell 4% following a price target drop by BMO Capital to $32 from $36.50. The news shouldn't come as much of a surprise to shareholders, who saw the company update its full-year forecast recently to a full-year profit of just $0.30 from a previous full-year EPS profit of $2.59. The company does believe the U.S. coal market has turned the corner, but it's now seeing challenges outside the United States.
Can you bank on these returns?
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