MarketView for December 18

Summary

Share prices rallied on strong volume, sending all three major equity indexes well into positive territory, capping off the S&P 500's best two-day run in a month. The rally was the result of renewed confidence that a deal would be struck in Washington to avoid painful spending cuts and tax hikes that could hurt the economy.

Banks, energy and technology sectors that would benefit during economic expansion led the day’s parade, as investors continued to remain confident that Congress will come to an agreement to avoid the so-called "fiscal cliff" deadline at the end of the year.

President Barack Obama's most recent offer to Republicans in the ongoing budget talks makes concessions on taxes and social programs spending. House Speaker John Boehner said the offer is "not there yet," though he remains hopeful about an agreement. Senate Democrats, however, have expressed concern about cuts to Social Security.

Financial stocks moved sharply higher, as traders bet on a greater demand for loans and a steepening of the yield curve. Treasury debt sold off with the benchmark 10-year U.S. Treasury note's yield briefly hitting its highest point since late October.

It was the S&P 500's first back-to-back gain of more than 1 percent since late July. At the same time, stocks of smaller companies outperformed the broader market, with the Russell 2000 up 1.5 percent.

Shares of firearm makers sank in the aftermath of the school shooting in Newtown, Connecticut, on Friday that killed 20 young children and six adults. Smith and Wesson ended the day down 10 percent to $7.79 on its largest-ever daily volume, though it was still up about 77 percent so far this year. Sturm Ruger closed down 7.7 percent at $40.60.

Private equity firm Cerberus Capital Management said it would sell Freedom Group, whose Bushmaster AR-15 rifle was used in the Connecticut massacre. Dick's Sporting Goods suspended the sale of certain semi-automatic rifles in its stores nationwide.

Technology shares rose, led by Apple, up 2.9 percent at $533.90 after losing nearly 13 percent in the last two weeks. The S&P Information Technology Index rose 1.7 percent.

Arbitron closed up 23.6 percent to end the day at $47.03 after Nielsen agreed to buy the media and marketing research firm in a deal worth $1.26 billion. Nielsen rose 4.4 percent to $30.92.