Peter Tuchman, a trader with Quattro M Securities, works from a hand-held… (Bebeto Matthews, Associated…)
Reporting from New York — If the stock market's famed "January Effect" still carries any weight, 2012 is setting up to be a good year for investors.
Thanks to a growing body of data pointing to U.S. economic growth, the Dow Jones industrial average rose 179 points on the first trading day of 2012.
That helped the Dow make up most of the losses it had suffered since last summer and provided a hopeful start to a week that has historically been a good predictor for the market's performance during the rest of the year. Since World War II, positive returns during the first week of January have been followed by positive returns at the end of the year more than 85% of the time.
Traders were careful about putting too much weight on a single day's jump in stock prices, but there was plenty of optimism to go around when markets closed.
"People are starting to believe that we've put the worst behind us — that we're going to start to solve some of the problems we face," said John Wilson, chief technical strategist at Morgan Keegan.
The Dow closed Tuesday up 179.82 points, or 1.5%, at 12,397.38. That is as high as the blue-chip index has been since July, when the big worries about the European debt crisis were beginning to set in.
The Standard & Poor's 500 index climbed 19.46 points, or 1.6%, to 1,277.06. The Nasdaq composite index rose 43.57 points, or 1.7%, to 2,648.72.
The European situation has been largely stable since the European Union leaders worked out an agreement in late November to help shore up the continent's weaker economies. But many market watchers worry that problems could flare up again, giving investors another scare.
One opportunity for that will come Monday when French President Nicolas Sarkozy and German Chancellor Angela Merkel meet to discuss the agreement for the first time since November.
"We're back from the precipice; I just don't know how far," said Kim Caughey Forrest, a portfolio manager at Fort Pitt Capital Group. "We've had a lot of good talk, but as far as putting money to work, we still have to see about that."
Stock markets in Europe and most of the rest of the world ended up performing significantly worse than those in the U.S. in 2011, a year in which the Dow increased 5.5%.
To begin the new year, stocks have risen sharply in the rest of the world thanks to economic data indicating that manufacturing has slowed less than expected in Europe and China. Leading indexes are already up 5.3% for 2012 in Germany and 3.2% in France.
Much investor hope, though, is still pinned to the U.S., which has provided more significant signals of economic recovery.
One of the most closely watched indicators, the Institute for Supply Management's manufacturing index, showed Tuesday that the manufacturing industry grew in December for the second straight month, and faster than most analysts had expected. Construction spending was up in November, according to new Commerce Department data.
The data sparked a willingness to take on more risky investments after a year in which market swings pushed many investors to seek out the haven of U.S. Treasury bonds. The volatile financial and energy sectors led stocks up Tuesday while the price of Treasury bonds fell.
"That's a very encouraging sign in terms of the likelihood that there will be some follow-through," said Peter Kenney, a trader with Knight Capital Group.
The rest of the week will provide more signs of whether the U.S. economy really is in growth mode. The December figures for car sales will be released Wednesday, and the monthly jobs report from December will come out Friday.