U.S. stocks jumped, with benchmark indexes rallying the most since January, as lawmakers moved toward an agreement to increase the debt ceiling and avoid a default.
Nike (NKE:US) Inc., Boeing Co. and American Express Co. rose more than 3.4 percent, leading advances among large companies. Wells Fargo & Co. and JPMorgan Chase & Co. gained at least 2.7 percent before reporting earnings tomorrow, propelling financial shares to the biggest gain in 16 months. Gilead Sciences (GILD:US) Inc. jumped 6.5 percent as the largest biotechnology company by market value said the cancer drug idelalisib improved survival times.
The Standard & Poor’s 500 Index (SPX) surged 2.2 percent to 1,692.56 at 4 p.m. in New York. The Dow Jones Industrial Average advanced 323.09 points, or 2.2 percent, to 15,126.07. Both gauges had their steepest climbs since Jan. 2. About 6.5 billion shares changed hands on U.S. exchanges, 12 percent higher than the three-month average.
“You’re taking the nuclear option off the table, the fact that we’ll blow through the debt ceiling, that’s not going to happen,” Dan Veru, the chief investment officer who helps oversee $4.5 billion at Palisade Capital Management LLC, said in a phone interview from Fort Lee, New Jersey. “This continues to put pressure on lawmakers to get a deal done because they’re seeing that just in fact talking is what markets want them to” do, he said.
All but 12 members of the S&P 500 index rose today, the broadest advance this year. The gauge’s rally was the biggest since a 2.5 percent surge on the first trading day of the year, when lawmakers passed a bill averting spending cuts and tax increases known as the fiscal cliff. The index has climbed 0.7 percent since the government shutdown began Oct. 1, and has trimmed its decline to 1.9 percent since closing at a record of 1,725.52 on Sept. 18.
Investors reacted to a House Republican proposal for a short-term increase in the debt ceiling that would reduce the prospects for a U.S. default. The plan would push the lapse of U.S. borrowing authority to Nov. 22 from Oct. 17. It wouldn’t end the 10-day-old partial shutdown of the federal government.
President Barack Obama would support a short increase in the U.S. debt limit with no “partisan strings attached,” though he prefers a longer extension, Jay Carney, the White House press secretary, said today. The proposal could come up for a vote on the House floor as soon as tomorrow.
U.S. Treasury Secretary Jacob J. Lew warned Congress today that “uncertainty” over the debt limit is starting to stress financial markets and trying to time an increase to the last minute “could be very dangerous.”
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, slumped 16 percent today to 16.48 for its biggest retreat since April. The gauge is down 8.6 percent in 2013.
“The market has been very emotional,” Paul Mangus, head of equity strategy and research for Wells Fargo Private Bank in Charlotte, North Carolina, said in a phone interview. His firm manages $170 billion. “You had days of positive, relief rallies followed by days of angst and concerns over the debt ceiling and government shutdown. Until we reach a period where we have clarity on that, we’d expect volatility to be elevated.”
A Treasury Department report on Oct. 3 said consequences would be “catastrophic” should the U.S. default, including higher interest rates, lower investment and slow growth for decades to come.
A partial federal government shutdown lasting through the end of this week would pare 0.2 percentage point from U.S. economic growth and cost as much as 0.5 point if it continues another two weeks, according to the median estimate in a Bloomberg survey of economists taken Oct. 4-9. The
Claims for U.S. jobless benefits jumped last week to the highest level in six months, a Labor Department report today showed, providing the first statistical warning that the damage from the partial federal shutdown is starting to ripple through the economy.
Most Fed officials last month predicted drag from fiscal restraint would be a reason for them to hold the benchmark lending rate at 2 percent or lower until the end of 2016 to support growth and job creation.
Investors will watch financial reports as more companies release third-quarter results. Profits for companies in the S&P 500 probably increased 1.7 percent during the three months while sales rose 2.2 percent, according to analysts’ estimates compiled by Bloomberg. The projections are down from 5.7 percent and 3.6 percent, respectively, from the end of June.
“There is not a pent-up expectation that this is going to be a gangbuster quarter,” Mangus said. “Consequently, you can have some positive surprises.”
All 10 S&P 500 industry groups jumped at least 1.4 percent. Companies whose earnings are most tied to economic swings led the gains. The Morgan Stanley Cyclical Index jumped the most in a month, adding 1.9 percent.
Industrial shares surged 2.7 percent to pace gains. Boeing, the world’s largest planemaker, rallied 3.9 percent to $118.90 for the biggest gain in the Dow.
Nike advanced 3.6 percent to $73.44. DA Davidson & Co. raised its stock-price estimate for the world’s largest sporting-goods maker to $76 from $75 after the company said yesterday that annual sales will rise to $36 billion by the end of fiscal 2017.
Financial shares surged 2.9 percent as a group, the biggest rally since June 2012, as all 81 members of an S&P index advanced. American Express, the biggest U.S. credit-card issuer by purchases, jumped 3.4 percent to $74.66.
Wells Fargo gained 2.7 percent to $41.44 while JPMorgan added 3.5 percent to $52.52. JPMorgan is among lenders that said earnings will suffer from a bond-trading slump, while Wells Fargo guided analysts to expect mortgage originations to fall by almost 30 percent.
MetLife Inc. added 3.7 percent to $48.11 and Prudential Financial Inc. climbed 4.1 percent to $79.07, pacing gains among insurers as bond yields rose. The firms invest funds from clients in bonds and other assets to back future payouts.
Gilead Sciences jumped 6.5 percent to $62.74. The company said patients benefited enough from the cancer drug idelalisib to end a late-stage study early.
Netflix Inc. rose 5.4 percent to $303.99, snapping a three-day slide. Laura Martin, an analyst with Needham & Co., started coverage of the stock with a buy rating and said the video service provider has the ability to boost subscription prices. While Netflix fell 12 percent this week through yesterday, the stock has more than tripled since the start of the year.
Time Warner Cable Inc. jumped 6.1 percent to $116.95. The cable company and Univision Communications Inc., a media group that caters to Hispanic Americans, agreed to extend their partnership and deliver more content to Time Warner subscribers.
UnitedHealth Group Inc. surged 3.6 percent to $73.98. The biggest U.S. insurer had the outlook on its credit rating raised to positive from stable by S&P on expectation that the company will strengthen its leadership in the industry.
Citrix Systems Inc. (CTXS:US) slumped 12 percent to $58.75 as the technology company reported preliminary third-quarter earnings of 68 cents to 69 cents a share. That missed the average analyst estimate compiled by Bloomberg of 73 cents.
Quest Diagnostics Inc. slipped 4.9 percent to $58.66. The biggest U.S. operator of medical laboratories said preliminary results showed that, excluding some items, it earned $1.02 a share in the third quarter. Analysts, on average, estimated $1.20, according to a Bloomberg survey.
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