When the House of Representatives met yesterday and voted to pass a bill that would keep taxes the same for most Americans and postpone massive federal spending cuts, they essentially kicked the can further down the road. But investors rallied behind the deal and drove the Dow Jones Industrial Average (DJINDICES:^DJI) higher. The index closed the first trading day of 2013 up 308 points, or 2.35%, and now sits at 13,412. The other major indexes also climbed today, as the S&P 500 (SNPINDEX:^GSPC) ended the session up 36 points, or 2.54, while the Nasdaq (NASDAQINDEX:^IXIC) led the three indexes with its 92 points, or a 3.07% increase.
The most potentially devastating part of the fiscal cliff was the scheduled end of the Bush tax cuts, which would have essentially raised the marginal income tax rate on all Americans, no matter their income level. That could have crushed the economy. With many lower- and middle-class families still struggling to get by after the most recent recession took a devastating toll on these important income groups, hitting them with another punch may well have knocked them out. Many economists believed that with higher income taxes across the board, spending would decrease and the U.S. would fall back into another recession. But on New Year's Day, Congress passed a bill that kept the marginal income tax rate the same on Americans making less than $400,000 individually or $450,000 filing jointly.
While every single Dow component ended the day in the green, some of the best performers were the consumer-oriented companies. Shares of Coca-Cola (NYSE:KO) rose by 3.72%, while AT&T (NYSE:T) saw its shares increase by 3.83%. The Dow's top performer today was Hewlett-Packard (NYSE:HPQ), which saw shares rise by 5.4%, and following on the coattails of the PC manufacturer was Microsoft (NASDAQ:MSFT), which rose by 3.41%.