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Stocks Continue the Party on Fiscal Cliff Optimism

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Today's financial recap and tomorrow's financial outlook.

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MINYANVILLE ORIGINAL The S&P 500 (INDEXSP:.INX) rallied hard for the second straight day as increasing optimism regarding a fiscal cliff deal emboldened traders.

In recent days, we have seen both President Obama and House Speaker John Boehner offer compromises on highly partisan issues like tax rates and entitlement forum, and the reduced uncertainty has the market in a good mood.

We've seen a rapid switch to "risk-on," with significant outperformance in economically sensitive areas of the market like small caps, technology, and energy.

There has also been a steepening of the yield curve, a bullish shift for bank stocks, which tend to borrow short and lend long. Financials also received a boost from investment bank Jefferies (NYSE:JEF). The bank showed impressive results in fixed income trading, which has been a drag on earnings for the banks in recent quarters.

Momentum favorite Apple (Nasdaq:AAPL) rallied sharply for the second day in a row, and is now up more than 6% off its early-Monday lows.

One notable area of weakness in the market was gun stocks. Firearm manufacturers Smith & Wesson (Nasdaq:SWHC) and Sturm Ruger (NYSE:RGR) both fell sharply as the Newtown shooting tragedy has spurred calls for stricter gun control laws. Outdoor retailer Cabela's (NYSE:CAB), a major gun dealer, dropped as well. In closely related news, private equity firm Cerberus said it will sell its stake in gun maker Freedom Group, with news reports indicating that sale will come at a significant loss, despite skyrocketing gun sales in recent months.

Tuesday's Financial Outlook

Wednesday will be jam-packed with compelling data, starting at 7:00 a.m. EST with the MBA Mortgage Index. Following that, we'll receive the housing starts and building permit numbers, as well as the results of two Treasury auctions.

In earnings, General Mills (NYSE:GIS) and FedEx (NYSE:FDX) will report before the open, while Bed Bath & Beyond (Nasdaq:BBBY) and Paychex (Nasdaq:PAYX) reporting after the close.

Overseas, we'll see the Japan Leading Index report and the Bank of England meeting minutes. Plus, the Bank of Japan will begin its Monetary Policy Meeting.

Twitter: @Minyanville

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No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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