Aversion of the fiscal cliff is followed by positive PMI reports from both the ISM and Markit Economics.

The major American stock indices made huge advances on Wednesday after those hard-working folks in Washington spent their New Year’s holiday keeping the country away from the fiscal cliff.  The Institute for Supply Management reported that its manufacturing PMI climbed to 50.7 percent in December from November’s 48.4 percent.  A result above 50 indicates expansion.  The December PMI report from Markit Economics indicated a rise to 54.0 in December from November’s 52.8.  However, the result fell short of the flash estimate of 54.2.

As of 3:04 EST, the Dow Jones Industrial Average skyrocketed 234 points (1.79 percent) to 13,338.  The S&P 500 Index jumped 1.92 percent to 1,453 (NYSEARCA:SPY).  As the chart (at left) indicates, the S&P 500 has now climbed well above its 50-day moving average of 1,411.  The Relative Strength Index has bounced back up to 61.  The S&P’s next resistance level is its September 14 high of 1,465 (Chart courtesy of Stockcharts.com)  The Nasdaq Composite soared 2.63 percent  to 3,098 (NASDAQ:QQQ).  The Russell 2000 Index surged 2.20 percent to 868 (NYSEARCA:IWM).  Three ETFs for the January Effect

The “Dollar Bull” Index ETF (NYSEARCA:UUP) advanced 2 cents (0.11 percent) to 21.83 as of 2:34 EST.

As of 2:33 EST, the S&P 500 Volatility Index – or VIX – fell 14.37 percent to 20.33  and the VIX Short-Term Futures ETN declined 9.27 percent to 28.86 (NYSEARCA:VXX).

The Euro STOXX 50 Index finished Wednesday’s session with a 2.86 percent jump to 2,711.  The STOXX 50 is staying above its 50-day moving average of 2,556 as well as its March 19 high of 2,608 (NYSEARCA:VGK).  The FTSE 100 Index surged 2.20 percent to 6,027 NYSEARCA:EWU).  The German DAX Index rose 2.19 percent to 7,778 (NYSEARCA:EWG).  France’s CAC 40 Index soared 2.55 percent to 3,733 (NYSEARCA:EWQ).  Spain’s IBEX 35 Index jumped 3.43 percent to 8,447 (NYSEARCA:EWP).  Italy’s FTSE MIB Index skyrocketed 3.81 percent to 16,893 (NYSEARCA:EWI).

As of 2:36 EST, the euro declined 0.20 percent against the dollar, trading at $1.3167 (NYSEARCA:FXE).

On London’s ICE Futures Europe Exchange, February futures for Brent crude oil advanced by $1.34 (1.21 percent) to $112.45/bbl. (NYSEARCA:BNO, NYSEARCA:USO).

February Gold futures advanced by $12.30 (0.73 percent) to $1,688.10 per ounce (NYSEARCA:GLD).

ETF Summary: 

SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA)  +1.71%  as investor confidence gets a boost after the fiscal cliff is avoided.

SPDR EURO STOXX 50 ETF (NYSEARCA:FEZ)  +0.52%  making a more modest advance than the Euro STOXX 50 Index (which rose 2.86 percent) after overshooting the STOXX 50 Index on Monday.

Industrial Select Sector SPDR ETF (NYSEARCA:XLI)  +1.92%  following the upbeat PMI reports from the ISM and Markit Economics.

iShares Barclays 20+ Year Treasury Bond Fund (NYSEARCA:TLT)  -1.31%  as advancing stock prices cause investors to become less risk-averse, making the safe haven of government bonds less attractive.  Learn More About iShares ETFs.

SPDR S&P 500 INDEX ETF (NYSEARCA:SPY)  +1.89%  as government’s success in avoiding the fiscal cliff gives investors more confidence about the new year.  Fiscal Cliff Avoided, Can Kicked, Risk On

Bottom line:  There was plenty of good news to start the new year, as Congress approved the bill which steered America away from the fiscal cliff.  Both the ISM and Markit Economics released upbeat PMI reports which fueled investor optimism.   

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About John Nyaradi (http://www.wallstreetsectorselector.com) John Nyaradi is Publisher of Wall Street Sector Selector: Your Home For ETF Investing! John writes a weekly guest column, John Nyaradi’s ETF Edge for MarketWatch.com and his investment articles have appeared in many online publications including Trading Markets, Money Show, Yahoo Finance, Investors Insight, Fidelity, ETF Daily News, iStock Analyst , among many others. His book, Super Sectors: How to Outsmart the Market Using Sector Rotation and ETFs, is published by John Wiley and Sons and included among the Years Top Investment Books in the 2011 Stock Trader’s Almanac.