U.S. stocks jumped, with benchmark indexes rallying the most since January, as signs grew that lawmakers could reach an agreement to increase the debt ceiling and avoid a default.
Nike Inc., Boeing Co. and American Express Co. rose more than 3.2%, leading advances among large companies. Wells Fargo & Co. and JPMorgan Chase & Co. gained at least 2.6% before reporting earnings tomorrow. Gilead Sciences Inc. jumped 6% as the largest biotechnology company by market value said the cancer drug idelalisib improved survival times.
The Standard & Poor’s 500 Index (CME:SPZ13) rallied 2.1% to 1,691.11 at 3:30 p.m. in New York. The Dow Jones Industrial Average advanced 297.80 points, or 2%, to 15,100.78. Both gauges have their biggest gains since Jan. 2. Trading in S&P 500 stocks was 11% above the 30-day average at this time of day.
“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.
Benchmark equity indexes surged as House Republican leaders proposed 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 and 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 S&P 500 added 0.1% yesterday, halting a two-day, 2.1% slide, amid the signs of progress on the fiscal impasse and optimism that Janet Yellen, nominated to lead the Federal Reserve, won’t rush to withdraw stimulus.
The gauge’s rally today is the biggest since a 2.5% 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 advanced 0.6% since the government shutdown began Oct. 1, and has trimmed its decline to 2% since its record of 1,725.52 on Sept. 18.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, slumped 16% today to 16.41 for its biggest retreat since April. The gauge is down 9% 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.”
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 U.S. government has a week before its borrowing authority lapses on Oct. 17. 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.
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% 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% during the three months while sales rose 2.2%, according to analysts’ estimates compiled by Bloomberg. The projections are down from 5.7% and 3.6%, 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 rallied at least 1%. Companies whose earnings are most tied to economic swings led the gains. The Morgan Stanley Cyclical Index jumped the most in three weeks, adding 1.5%.
Industrial shares surged 2.5% to pace gains. Boeing, the world’s largest planemaker, rallied 3.5% to $118.51.
Nike advanced 3.3% to $73.25. 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 rallied 2.8% as a group, the biggest rally since Jan. 2, as all 81 members of an S&P index advanced. American Express, the biggest U.S. credit-card issuer by purchases, jumped 3.2% to $74.50.
Wells Fargo gained 2.6% to $41.39 while JPMorgan added 3.2% to $52.37. 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%.
MetLife Inc. added 3.5% to $47.99 and Prudential Financial Inc. climbed 3.6% to $78.72, 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 climbed 6% to $62.41. The company said patients benefited enough from the cancer drug idelalisib to end a late-stage study early.
Netflix Inc. rose 5.6% to $304.56, 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% this week through yesterday, the stock has more than tripled since the start of the year.
Time Warner Cable Inc. jumped 5.5% to $116.34, headed for the biggest increase since June. The cable company and Univision Communications Inc., a media group that caters to Hispanic Americans, agreed to extend their partnership and deliver more Univision content to Time Warner subscribers.
UnitedHealth Group Inc. surged 3.4% to $73.82. 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 improve its leading market positions and pricing flexibility.
Citrix Systems Inc. slumped 12% to $58.90 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 4.4% to $58.99. 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.