Stocks started on a strong foot for the first trading day of 2013, rising 2% after Congress finally nailed down a deal to avert the Fiscal Cliff. Here’s what you need to know about the deal that was passed.
While the deal does extend the Bush-era tax cuts for the majority of Americans, individuals making over $400,000 and families earning over $450,000 will see tax rates rise in 2013. Also, because the deal didn’t address the payroll tax increase, working Americans will see an increase in the taxes they pay this year. Estimates say an extra $1,000 will come out of your earnings if you make $50,000 per year.
Even so, investors cheered the passage of the bill because it has cleared up some of the uncertainty surrounding the tax code this year. A good chunk of the cash that was sitting on the sidelines during the fiscal cliff talks has been unleashed, and premium blue chip stocks like Apple (NASDAQ:AAPL) have especially benefitted from this surge.
Now that we’ve cleared this first fiscal hurdle, it’s important to remember that there still are plenty of things Congress will need to address in the coming months. In particular, because the bill simply delays the automatic federal spending cuts by two months, we’ll see the House and Senate go head to head again. With that debate and the debt ceiling talks still on the table, Beltway squabbles could continue to affect investor confidence.
So while I’ll happily take Wednesday’s rally and it may last for several days as cash continues to enter the market, I’m going to keep a close watch on events as they unfold. If I see any potential causes for choppiness, I’ll tell you about it first in this daily blog.