U.S. stocks fluctuate on Yellen pick as lawmakers seek debt deal

U.S. stocks fluctuated, after the benchmark index’s biggest two-day decline since June, as a report that Janet Yellen was picked to lead the Federal Reserve offset concern that the debt impasse will harm the economy.

Alcoa Inc. rallied 3.8% after the biggest U.S. aluminum producer unofficially kicked off earnings season with better-than-forecast profit. Men’s Wearhouse Inc. jumped 25% after Jos. A. Bank Clothiers Inc. offered to acquire the apparel retailer. Yum! Brands Inc. sank 8.5% after third-quarter income fell 68% on lower same-store sales in China. Costco Wholesale Corp. dropped 1.6% after profit missed estimates.

The S&P 500 (CME:SPZ13) added less than 1 point to 1,655.56 at 10:09 a.m. in New York after climbing 0.2% earlier. The Dow Jones Industrial Average rose 3.11 points, or less than 0.1% to 14,779.64. Trading in S&P 500 stocks was 6.5% above the 30-day average during this time of day.

“The longer the Washington shutdown goes, the more we drift lower,” John Augustine, who helps manage $27 billion as chief market strategist at Cincinnati-based Fifth Third Bancorp, said in a phone interview. “The earnings estimate revisions for next year and the market’s assessment of impact to GDP next year will determine how fast we recover. The market expects to see a continuation of Fed policy from Yellen. That’s one stabilizing force for the market at least for today.”

The S&P 500 retreated 2.1% over the past two days as concern grew that lawmakers may fail to raise the federal debt ceiling in time to avoid a government default. Economists say failure by the world’s largest borrower to pay its debt will devastate stock markets from Brazil to Zurich and throw the U.S. and world economies into a recession that probably would become a depression.

Partisan Impasse

Some possible paths out of the partisan impasse in Washington are starting to emerge as the U.S. government enters the ninth day of a partial shutdown, with just over a week before U.S. borrowing authority lapses Oct. 17. Each option is tentative and lawmakers remain far from an agreement amid verbal sparring between President Barack Obama and House Speaker John Boehner.

Senate Democrats started setting up a test vote for later this week on a plan that would push the next debt-limit fight into 2015. Obama said he could accept a short-term increase without policy conditions that set the terms for future talks.

Obama will nominate Yellen, the current Fed vice chairman and an architect of its stimulus program, to succeed Ben S. Bernanke as chairman at 3 p.m. in Washington, according to a White House official. As a top deputy to Bernanke, whose term expires Jan. 31, Yellen supported the central bank’s bond-buying programs that have helped propel the S&P 500 up as much as 155% from a 12-year low in March 2009.

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