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U.S. Stocks Rally as Senate Reaches Deal on Debt Ceiling
<cite class="byline" style="margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 11px; vertical-align: baseline; background-color: transparent; width: 640px; color: rgb(111, 111, 111); display: block; font-style: normal; line-height: 1.3em; position: static !important; background-position: initial initial; background-repeat: initial initial;">By Nick Taborek - Oct 17, 2013 12:27 AM GMT+0800</cite>
U.S. stocks rallied, sending the Standard & Poor’s 500 Index (SPX) toward a record, as the Senate crafted a deal to end the government shutdown and raise the debt ceiling before tomorrow’s deadline.
All 10 main industries in the S&P 500 gained at least 0.7 percent, with financial shares advancing the most. Bank of America Corp. jumped 2.4 percent as lower legal expenses and loan losses helped profit rebound. Mattel (MAT) Inc. increased 2.5 percent after reporting earnings that topped analyst estimates.
The S&P 500 rose 1.3 percent to 1,720.57 at 12:24 p.m. in New York. The benchmark gauge slid 0.7 percent yesterday after climbing 3.3 percent over the previous four days. The Dow Jones Industrial Average gained 196 points, or 1.3 percent, to 15,364.01 today. The Nasdaq Composite Index climbed 1.1 percent to the highest level since 2000. Trading in S&P 500 stocks was 20 percent above the 30-day average at this time of day.
“Investors are relieved that it looks like we’re not going to go over the cliff,” Ben Hart, a research analyst at Radnor, Pennsylvania-based Haverford Trust Co., which oversees about $6 billion, said by phone. “It takes the worst case scenario off the table.”
The S&P 500 has advanced 2.4 percent this month even as Congress failed to agree on a federal budget, forcing the first partial government shutdown in 17 years. The gauge is up 21 percent for the year, and is less than five points from its all-time high of 1,725.52 reached Sept. 18.
Debt Limit
The bipartisan leaders of the U.S. Senate reached an agreement to end the fiscal impasse, said Senate Majority Leader Harry Reid. The agreement would end the 16-day-old government shutdown and extend U.S. borrowing authority, which lapses tomorrow.
House Republicans today signaled that they will allow it to pass. The biggest remaining question is how quickly the agreement could become law. The first votes could be held as soon as today.
The framework negotiated by Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell would fund the government through Jan. 15, 2014, and suspend the debt limit until Feb. 7, setting up another round of confrontations.
With no deal, the U.S. would exhaust its borrowing authority tomorrow and the government may start missing payments at some point between Oct. 22 and Oct. 31, according to theCongressional Budget Office. Fitch Ratings put the world’s biggest economy on watch for a possible credit downgrade yesterday, citing lawmakers’ inability to agree.
‘Moving Forward’
“If Boehner is going to bring this to a vote on the floor, then we’re closer to getting a resolution to this, and the markets are pricing that in,” Stephen Wood, New York-based chief market strategist at Russell Investments, where he helps oversee about $237 billion, said by phone. “A formal vote on the floor would be a sign that the political process is moving forward.”
The Federal Reserve is scheduled to release its Beige Book of current economic conditions today.
Some 22 companies in the S&P 500 are due to post results today. Profits for companies in the index probably increased 1.4 percent during the third quarter while sales rose 2 percent, according to analysts’ estimates compiled by Bloomberg.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, dropped 18 percent to 15.23, the biggest decline since April, after surging 16 percent yesterday.
All 10 S&P 500 groups rose, with financial, health-care and phone companies rallying more than 1.5 percent. The Dow Jones Transportation Average climbed 1.2 percent.
FedEx Corp. surged 3.1 percent to a record $123.78, adding to yesterday’s 4.1 percent advance. The operator of the world’s largest cargo airline authorized a buyback plan of as many as 32 million shares, its biggest repurchase program ever.
‘Lion’s Share’
Bank of America jumped 2.4 percent to $14.58. Chief Executive Officer Brian T. Moynihan, 54, has said the “lion’s share” of costs tied to disputed mortgages are behind his bank after booking more than $45 billion tied to his predecessor’s 2008 takeover of Countrywide Financial Corp. after third-quarter profit beat estimates.
The KBW Regional Banking Index rose 1.5 percent as 49 out 50 members gained. KeyCorp rallied 3.3 percent to $12.25 and PNC Financial Services Group Inc. advanced 1.9 percent to $73.86 after both banks beat third-quarter profit estimates.
Mattel climbed 2.5 percent to $42.59. The world’s largest toymaker topped estimates as sales of Barbie and American Girl gained. The company has been trying to boost sales amid lackluster growth of the toy industry in the U.S., the company’s largest market, as kids spend more time using electronic devices.
Abbott, Stanley
Abbott Laboratories jumped 5.4 percent to $35.55. The provider of health-care diagnostics and medical devices reported third-quarter results that surpassed analyst estimates and raised its dividend by more than half. Revenue rose 2 percent to beat company estimates on increased demand for diagnostic tests. Abbott spun off its drug business into a new company earlier this year.
Stanley Black & Decker Inc., the maker of power tools and electronic security systems, tumbled 13 percent to $77.49 for the largest drop in the S&P 500. The company cut its full-year earnings outlook on slower-than-anticipated improvement in margins in its security business and weakness in emerging markets, as well as uncertainty created by the U.S. government shutdown.
To contact the reporter on this story: Nick Taborek in New York at [email protected]
To contact the editor responsible for this story: Lynn Thomasson [email protected]
