U.S. stocks rose, following the second-biggest gain of the year for the Standard & Poor’s 500 Index (CME:SPZ13), as lawmakers continued talks to raise the government’s debt limit to avoid a default and investors watched earnings.
JPMorgan Chase & Co. rose 0.6% as adjusted third- quarter earnings topped analysts’ estimates. Wells Fargo & Co. slumped 1.7% as its results showed weakness in mortgage lending. Potash Corp. of Saskatchewan Inc., North America’s largest producer of the plant nutrient, dropped 1.5% after cutting its profit forecast.
The S&P 500 added 0.2% to 1,695.84 at 10:05 a.m. in New York. The Dow Jones Industrial Average climbed 46.32 points, or 0.3%, to 15,172.39. Trading in S&P 500 stocks was 6.7% above the 30-day average during this time of day.
“I suspect we may still be at least several days away from getting any sort of final resolution and it may create some market volatility as we go forward,” Cam Albright, director of asset allocation at Wilmington Trust Investment Advisors, said in a phone interview from Wilmington. His firm oversees about $20 billion. “The backdrop continues to be one of being apprehensive about what’s happening in Washington, but also recognizing that there is probably a pretty decent economy underneath it.”
The S&P 500 yesterday jumped 2.2%, the most since Jan. 2, as lawmakers moved toward an agreement to increase the debt ceiling and avoid a default for a month. President Barack Obama and House Republican leaders met for 90 minutes at the White House yesterday even as they remained at odds over terms for ending the partial government shutdown.
Without an increase to the debt limit, the U.S. will exhaust its borrowing authority on Oct. 17 and would run out of funds to pay all of its bills sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.
“It’s worrisome if it is prolonged, but they are going to come to some resolution,” said Grant Bughman, who helps oversee $643 billion at UBS Global Asset Management in New York. “The risk is if they fail to reach an agreement, then all bets are off. That will have a material impact on growth and on equities. But we think that is an extremely unlikely scenario.”
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 Thomson Reuters/University of Michigan preliminary consumer sentiment index for October decreased to 75.2 from a final reading of 77.5 in September, a report showed today. The median estimate in a Bloomberg survey of 68 economists projected a drop to 75.3.
With few economic reports available during the shutdown, investors are watching 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.
JPMorgan rose 0.6% to $52.82. The bank reported its first quarterly loss under Chief Executive Officer Jamie Dimon after taking a $7.2 billion charge for legal expenses. Earnings on an adjusted basis still beat analysts’ estimates.
Safeway Inc., the second-largest U.S. grocery-store chain, rose 5% to $33.14. The company reported yesterday after markets closed that identical-store sales will rise as much as 1.9% this year. Safeway also said it will leave Chicago by selling its stores there.
Wells Fargo slipped 1.7% to $40.73. The largest U.S. home lender said third-quarter profit climbed 13% to a record as fewer loan defaults and lower expenses helped overcome weakness in mortgage lending.
Chief Financial Officer Timothy Sloan, 53, told analysts last month that mortgage originations and profit margins on selling home loans would fall in the third quarter. Borrowers were discouraged as interest rates rose amid speculation that the Federal Reserve would pare its efforts to stimulate the economy with low rates.
Potash Corp. fell 1.5% to $31.28. The company said yesterday third-quarter earnings will be about 41 cents a share after customers deferred purchases amid predictions that prices for its main product will slump. In July, it predicted profit of 45 cents to 60 cents. The average of 27 analyst estimates compiled by Bloomberg was for 47 cents, excluding one-time items.
Micron Technology Inc., the largest U.S. maker of memory chips, fell 3% to $17.87 even as the company reported fiscal fourth-quarter sales that exceeded analysts’ estimates. Following the report, Wells Fargo lowered its recommendation on the shares to underperform, or sell, from market perform, or hold, citing valuation. The stock has almost tripled this year.