Stocks rally to cap off best run in a month

US stocks rallied on strong volume yesterday, capping off the S&P 500’s best two-day run in a month, on 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 gains as investors remain confident that lawmakers will come to an agreement to avoid the so-called “fiscal cliff” deadline at the end of the year.

The PHLX oil services sector index jumped 3.1 per cent, with eight of its 15 components up three per cent or more. Financial stocks shot higher, as traders bet on a greater demand for loans and a steepening of the yield curve.

US government debt sold off yesterday, with the benchmark 10-year US Treasury note’s yield briefly hitting its highest since late October. The S&P financial sector added 1.5 per cent.

The Dow Jones industrial average rose 0.87 per cent, to 13,350.96 at the close. The S&P 500 gained 1.15 per cent, to 1,446.79. The Nasdaq Composite added 1.46 per cent, to 3,054.53. It was the S&P 500’s first back-to-back gain of more than one per cent since late July.

Shares of firearm makers sank in the aftermath of a school shooting in Newtown, Connecticut, on Friday that killed 20 young children and six adults. Smith and Wesson fell 10 per cent to $7.79 on its largest-ever daily volume, though it was still up about 77 per cent so far this year.