Why the Dow Exploded Higher This Morning

Wall Street may be the financial capital of the world, but today the stock market owes all of its gains to Washington. Despite having to wait beyond the changing of the calendar, investors finally got much of the clarity on taxes they had hoped for after the Senate came up with a fiscal-cliff compromise that the House managed to pass late last night. Although there are concerns about whether the deal will really avert a big drag on the economy in 2013, stocks around the world nevertheless soared, and the Dow Jones Industrials (DJINDICES: ^DJI  ) were up 237 points as of 10:45 a.m. EST., and broader markets were also up almost 2% in early trade.

In today's broad-based rally, all 30 Dow stocks are up. In fact, only Johnson & Johnson (NYSE: JNJ  ) failed to post gains of at least 1%. Despite all the tax incentives preserved by the fiscal cliff deal, one thing J&J will have to deal with is the excise tax on medical devices, which went into effect yesterday. Between that and the fact that J&J is seen as a defensive stock that tends not to rise as much as the overall market during bull rallies, it's not surprising to see the health care giant's shares post only modest gains.

Outside the Dow, Zipcar (UNKNOWN: ZIP.DL2  ) rallied nearly 50% on news that Avis Budget (NASDAQ: CAR  ) will buy the car-sharing service for $12.25 per share. The move will help Avis keep up with industry rivals as it recognizes the growing trend toward Zipcar's flexible service. However, although Zipcar shareholders have to be pleased about a big one-day jump, over the past year they've taken substantial losses that they now won't have a chance to recoup in full.

Finally, the big losers for the day are volatility ETFs that were counting on a fiscal-cliff failure to create a big plunge. The iPath S&P 500 VIX ETN (NYSEMKT: VXX  ) fell more than 7%, and leveraged exchange-traded VelocityShares Daily 2x VIX Short-Term ETN (NASDAQ: TVIX  ) has sunk more than 15% on the day. Some argue that complacency will only leave the market open to a later, larger decline that could bode well for volatility ETFs. But for now, stock investors have gotten everything they've asked for.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 02, 2013, at 11:27 AM, BMFPitt wrote:

    And once again, I see something that I was thinking about buying in the next few weeks blow up.

  • Report this Comment On January 02, 2013, at 11:27 AM, cmrk3 wrote:

    Did you see this?

    http://techcrunch.com/2013/01/02/not-so-fast-avis-proposed-5...

    Is ZIP now a sell or a hold?

  • Report this Comment On January 02, 2013, at 1:03 PM, thogshead wrote:

    Concerning " Some argue that complacency will only leave the market open to a later, larger decline that could bode well for volatility," if anyone is interested knowing how and when VIX volatility will change, Volatility Research accidently stumbled onto a pretty good way to predict VIX “fear gauge”

    volatility using NYSE VXX:

    http://www.sites.google.com/site/VolatilityResearch/

    The klinker in this market-woodpile is VIX volatility, and this year-long rally may prove to have been a house-of-cards.

    We’re in the lull before the Perfect Volatility Storm.

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