U.S. stocks rise as retailer rally offsets debt-ceiling concern

U.S. stocks rose, rebounding from earlier losses in the Standard & Poor’s 500 Index, as a rally in retail and transportation stocks overshadowed concern about talks on raising the debt ceiling.

The S&P 500 rose 0.1 percent to 1,472.31 at 4 p.m. New York time, after falling as much as 0.5 percent earlier. The Dow Jones Transportation Average gained 0.7 percent to 5,639.42 for a record high.

With as little as a month until the U.S. runs out of money to pay its bills, President Barack Obama warned Republicans in Congress not to use the need for a debt-limit increase to force through new spending cuts. Obama insisted yesterday he won’t negotiate on raising the debt ceiling because the U.S. has no choice other than to pay for spending it has authorized. Many Republicans in Congress say a boost in borrowing authority must be linked to spending cuts.

The Treasury Department has been using emergency measures since the end of December to prevent a breach of the $16.4 trillion debt limit. In a letter yesterday to House Speaker John Boehner, Treasury Secretary Timothy Geithner said the department expects to exhaust those measures “between mid-February and early March.”

Since 1960, Congress has raised or revised the limit 79 times, including 49 times under Republican presidents, according to the Treasury Department. A failure of U.S. lawmakers to raise the nation’s debt ceiling would prompt a “formal review” of its credit rating, Fitch Ratings said in a press release today.

“As we get closer to the uncertainty and you get the rating agencies now piping in, markets are going to get a little more volatile,” said Sarat Sethi, a New York-based portfolio manager at Douglas C. Lane & Associates, who helps manage $2.5 billion.

Economic Data

Manufacturing in the New York region contracted in January for the sixth straight month as the industry continued to face the effects of fiscal uncertainty in the U.S. and lackluster demand overseas. Retail sales in the U.S. rose more than projected in December while wholesale prices dropped for a third month as food costs retreated.

Investors also watched earnings reports. Almost 80 percent of the 30 S&P 500 companies which reported quarterly results beat analysts forecasts. Fourth-quarter profits at S&P 500 companies grew 2.5 percent, according to analysts’ estimates compiled by Bloomberg. That would be the second-slowest quarterly growth since 2009, the data show.

Earnings Slump

U.S. companies from Intel Corp. to General Electric Co. are caught in an earnings slump that shows few signs of improving until midyear as a weak global economy and gridlock in Congress weigh on profits.

Intel, the world’s largest semiconductor maker, is poised to report its biggest quarterly earnings drop in 3 1/2 years this week, based on analysts’ estimates compiled by Bloomberg. GE, the maker of jet engines and electrical generation equipment, may post its slowest profit growth in three quarters.

The results would contribute to a predicted 2.5 percent increase in fourth-quarter earnings for the S&P 500, the second- worst showing since 2009. Without a bump from financial companies that have cut jobs, the gain would be lower at 0.4 percent. A pickup may start in the second quarter, when analysts foresee earnings rising 8.2 percent from improving employment and housing and more clarity on government spending.

“Many companies slowed down their capital spending until they saw what was going to happen with the fiscal cliff,” said Stanley Nabi, who helps manage more than $11 billion as vice chairman of Silvercrest Asset Management Group in New York. “As employment increases, more people are earning income and spending. This supports the economy. We’ll have higher profits because we’re going to have higher revenue.”

Bloomberg News

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