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Wall Street zoomed higher for the month, with the blue chips posting their best January performance on a percent basis in 15 years, as fears over Europe's debt crisis cooled and traders cheered generally upbeat economic data and earnings reports.
On the Month
The Dow jumped 3.4%, the S&P 500 rallied 4.4% and the Nasdaq soared 8%. Broader market averages had comparatively strong Januaries as well as the Dow: the S&P had its best percent performance since 1997, while the tech-heavy Nasdaq did its best since 2001.
Meanwhile, in commodities, oil was essentially flat while gas surged 7.5%. Gold leaped 11% on the month.
Five of 30 blue chips accounted for nearly 80% of the Dow's 415-point gain for the month. Among them, Caterpillar (CAT) led the charge, lending 140 points and rallying 20.4%. IBM (IBM), DuPont (DD), United Technologies (UTX) and 3M (MMM) were the other major contributors. Bank of America (BAC) had the best performance of any of the Dow components, leaping 28.2%, but its low price point meant its point contribution was relatively small.
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January has historically been a reasonably strong gauge of full-year performance. Indeed, the blue-chip average has ended the year in the same direction as it did in January 75% of the time, according to data compiled by Dow Jones Indexes.
The European Union summit in Brussels on Monday was widely considered reasonably successful by analysts. All of the EU member countries agreed to closer fiscal ties except for Great Britain and the Czech Republic. The purpose of the agreement, which is expected to be signed in March, is to enforce budget discipline across the bloc with the hope of staving off a repeat of the current crisis.
The EU officials also agreed to the permanent sovereign rescue fund, called the European Stability Mechanism, which is expected to come into effect in July, European Council President Herman Van Rompuy said in a press conference following the summit. The fund's firepower, which has been the subject of much speculation, remains at 500 billion euro, although Van Rompuy said during the conference that this will be reassessed down the line.
"This represents a small step towards closer fiscal integration and stronger governance in the euro area and will hopefully set the stage for a significant expansion of the [European Central Bank's] balance sheet to prevent a potential break-up of the monetary union," analysts at Nomura wrote in a note to clients on Tuesday.
Still, other analysts who closely watch the situation in Europe struck a considerably more cautious tone: The fiscal pact may help to "prevent the next crisis, but really does nothing for the current one," Louise Cooper, a markets analyst at BGC Partners said in an interview with FOX Business.
In Athens, Greece and private bondholders continued negotiating a debt swap deal aimed at staving off a messy default. The country's Prime Minister Lucas Papademos said earlier "significant progress" was made and that he expects a deal by the end of the week, according to a report from Reuters.
The euro changed direction and fell 0.41% to $1.3089, while the U.S. dollar rose 0.16% against six world currencies that are tracked by the dollar index.
On the U.S. front, the S&P/Case-Shiller composite index of 20 metropolitan areas shows home prices fell 1.3% on a non-seasonally adjusted basis, a bigger drop than the 0.8% decline economists had expected. Home prices are down 3.7% from a year ago, more than the 3.3% economists had expected.
Consumer confidence unexpectedly fell in January, according to fresh data from the Conference Board. The gauge fell to 61.1 for the month from an upwardly revised 64.8 in December. The median forecast was for a reading of 68.
Earnings season is in full swing, with two Dow components reporting on Tuesday.
ExxonMobil (XOM) revealed fourth-quarter profits of $1.97 per share on $121.61 billion in revenue. Wall Street expected the biggest U.S. oil company to earn $1.96 per share on $119.7 billion.
Pfizer (PFE) unveiled adjusted fourth-quarter earnings of 50 cents per share on revenue of $16.7 billion. Analysts were expecting the pharmaceutical giant to earn 47 cents per share on $16.61 billion.
United Parcel Service (UPS) posted adjusted fourth-quarter profits of $1.28 per share, beating analysts’ forecasts by two cents. The shipping company, seen as a bellwether of the economy, said its sales came in at $14.2 billion for the quarter, shy of estimates of $14.46 billion.
Amazon.com (AMZN) posts its earnings after the closing bell.
Commodities markets were mixed, shedding significant gains. The benchmark crude oil contract traded in New York slumped 30 cents, or 0.3%, to $98.48. Wholesale RBOB gasoline climbed 0.58% to $2.887.
In metals, gold jumped $6.00, or 0.35%, to $1740.40 a troy ounce.
European blue chips rose 0.5%, the English FTSE 100 gained 0.19% to 5682 and the German DAX edged higher by 0.22% to 6459.
In Asia, the Japanese Nikkei 225 edged 0.11% higher to 8,803 and the Chinese Hang Seng tacked on 1.1% to 20,391.