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2013 Starts Off With a Boom!

The fiscal cliff made for an exciting start to 2013 as the equity markets got out of the gate fast.  This all looks like another real-time case of inefficient markets to me.  Investors were beginning to price in a very negative scenario when the reality was that a deal was going to get done and the highest probability outcome was Congress punting.  But that didn’t stop traders from buying downside protection and selling the market into the new year because of the scary “cliff” that was on the horizon….

Last week in a research note I wrote:

“I think the risk is primarily to the upside as it would take a fantastic policy failure in the next few weeks to prove the bears right at this juncture. That can’t be discounted entirely, but I presume there will be a deal sooner rather than later. This will bring clarity to the markets and should be a positive development.

I still think the risk lies to the upside here as this feels a lot like the environment from November, but we won’t really know the impact of these discussions until we see something on the President’s desk.”

Here are your closing numbers from the best first day of the year in market history:

DJIA: 13,412.5 + 308.41 (2.35%)

SP 500: 1,462.42 + 36.23 (2.54%)

Nasdaq: 3,112.26 +92.75 (3.07%)

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