NEW YORK — Stocks closed mixed Tuesday after enthusiasm over a deal to extend tax cuts faded.
Bond prices fell sharply as traders anticipated the tax cuts would boost economic growth but also lead to ballooning budget deficits. The yield on the 10-year Treasury note jumped to 3.13 percent, its highest level since June 22.
President Barack Obama and Republican leaders agreed to a broad package of tax cuts and an extension of unemployment benefits. The compromise plan helped send stocks higher in the morning, briefly pushing the Standard & Poor’s 500 to its highest level since the peak of the financial crisis in September 2008.
Private economists began raising their expectations for economic growth in response to the tax-cut deal. Bond traders focused on another factor: the widening budget deficit. Estimates vary widely, but some put the total cost of the package in the range of $900 billion over the next two years.
Slashing tax receipts to the Treasury without a plan to fill the shortfall is “the height of irresponsibility,” said Dan Greenhaus, chief economic strategist at Miller Tabak, in a note to clients.
The extension of the Bush- era income-tax rates, due to expire at the end of the year, removed a major source of uncertainty for financial markets. The deal announced late Monday also included a one- year break on payroll taxes, which will put money directly into Americans’ pockets. The same is true for the extension of unemployment benefits, which economists see as an effective way to stimulate the economy by getting people spending again.
“The deal in Washington is a big deal,” said Kim Caughey Forrest, equity-research analyst at Fort Pitt Capital Group. “Investors really do like certainty, and they really do like certainty around taxes.”
The Dow Jones industrial average fell 3.03, or 0.03 percent, to close at 11,359.16. It had been up as many as 89 points before turning lower in the afternoon.
The broader Standard & Poor’s 500 index rose 0.63, or 0.05 percent, to 1,223.75. The Nasdaq composite index rose 3.57, or 0.1 percent, to 2,598.49.
