Hot start to 2012 for Dow and S&P

The US saw the best start for stocks in 15 years, as in what was mostly a slow and steady climb, the Dow Jones industrial average rose 3.4% in January and the Standard & Poor’s 500 gained 4.4%.

That is the best performances for both indexes to open a year since 1997.

Investors were encouraged by modest but welcome improvement in the US economy, including an 8.5% unemployment rate, the lowest in almost three years. Corporate profits did not wow anyone – except Apple’s – but they were good enough.

“I don’t see anything really glamorous or tremendous about the economy or earnings,” said Jerry Harris, chief investment strategist at the brokerage Sterne Agee. “But I think they’re very acceptable, and things are grinding along.”

An unexpected drop in consumer confidence dragged stocks down on the final day of the month. The Dow Jones industrial average finished down 20.81 points, or 0.2%, at 12,632.91.

The broader market fared better. The S&P barely finished in the red, declining 0.60 point to 1,312.41. The Nasdaq composite index rose 1.90 points to close at 2,813.84. The Nasdaq gained 8% for the month, its best January since 2001.

In January 1997, the last time stocks had such a fast start, the S&P gained 6.1%. President Bill Clinton was inaugurated for his second term. An Asian financial crisis and Titanic lay ahead. Later that year, the Dow crossed 7,000 and 8,000 for the first time.

This January, analysts said, investors had such low expectations for the economy that it was easy for things to turn out better than expected.

The Dow closed at 12,217.56 at the end of last year, then started this year with a pop – a gain of 179.82 points on opening day. It was the kind of big swing investors became accustomed to in 2011.

Since then, it’s been a quiet ascent: 19 days in a row of moves of less than 100 points. The last time the Dow had such a placid stretch was a 34-day run that started December 3, 2010.

Scottrade, the online brokerage, said stock buyers outpaced sellers among its clients for the first 14 trading days of the year, January 3 to January 23. It also said volume was 16% higher than December’s average.

Today, the Dow started up 66 points after encouraging signs from Europe that Greece might finally complete a deal to cut its crushing debt, a step toward securing a critical 130 billion-euro bailout payment.

Greece is negotiating with investors who bought its government bonds. They are expected to swap their bonds for new ones with half the face value, plus a lower interest rate and longer term of maturity.

Investors are increasingly worried that Portugal may need a similar deal with its private creditors. European leaders insist the Greek reduction is a one-time event. Portugal’s borrowing costs have risen to record highs.

The Dow lost its gains after consumer confidence fell to 61.1 in January, down from 64.8 in December. Economists had expected 68. The Conference Board said Americans are more worried about their incomes, gas prices and business conditions.

There were also signs that the housing market continues to struggle. Home prices fell in November for a third straight month in in 19 of the 20 cities tracked by the S&P/Case-Shiller index. The biggest declines were in Atlanta, Chicago and Detroit.

In the commodities market, investors worried that the confidence figure was a sign of weaker demand to come, and they sold industrial metals that have prices closely tied to the economy.

Copper for March delivery dropped 3.65 cents to 3.79 dollars per pound, and March palladium ended down 2.15 at 686.35 per ounce. April platinum fell 28.20 to 1,588.10 an ounce.

The metals ended the day down after wild swings. Traders bid up prices in morning trading, encouraged by news that European officials were making progress to contain the financial crisis there, then sold hard on the confidence number.

“This is a day that every trader takes Tums (for stomach heartburn),” said George Gero, vice president at RBC Global Futures.

Precious metal prices ended the day mixed. The price of gold rose, as it often does when it looks like the economy might shrink or the dollar might lose its value. Gold for April delivery gained six dollars to finish at 1,740.40 an ounce.

In the bond market, the weak US economic data and uncertainty about Greece lit up demand for safe investments. The benchmark 10-year Treasury yield dipped to 1.795%, its lowest close in almost four months.

The yield on the five-year Treasury note hit a record low for the second straight day, falling to 0.70%.

Treasury yields have been falling since last week, when the Federal Reserve said it expected to hold interest rates near zero into late 2014, more than a year longer than its last estimate, because the economic recovery will need help.