U.S. stocks rose, sending the Standard & Poor’s 500 Index to a record, as speculation grew that the Federal Reserve will maintain the pace of stimulus after Congress ended the budget standoff.
The S&P 500 rose 0.7% to 1,732.83 at 4 p.m. in New York, surpassing the previous record of 1,725.52 from Sept. 18.
“The taper seems a little bit further out, certainly than anybody expected eight weeks ago and maybe even just a couple of weeks ago,” Walter Todd, chief investment officer at Greenwood Capital Inc., said in a phone interview from Greenwood, South Carolina. He helps manage $950 million. “It keeps a lid on rates and provides more liquidity for risk assets like stocks. People are back to focusing on the individual company dynamics that occur during earnings season.”
The S&P 500 gained 2.4% during the 16-day government closure that ended yesterday after President Barack Obama signed a bill to fund the government through Jan. 15 and extend the borrowing authority through Feb. 7.
Investors will now weigh the shutdown effects on corporate earnings and economic growth as the impasse fueled bets that the Fed will delay reducing its $85 billion in monthly bond purchases.
Pacific Investment Management Co. said the central bank will postpone tapering. The Fed “may now have no choice but to stay longer in its intense policy experimental mode –- due both to the likelihood of weaker data and to a perceived need to take out insurance for the economy against future political dysfunction,” said Pimco Chief Executive Officer Mohamed El- Erian in a CNBC blog posting.
The “fiscal shenanigans” undermined the case for tapering, Dallas Fed President Richard Fisher, an opponent to increasing stimulus, said today. Kansas City Fed President Esther George, who has voted this year against expanding stimulus, said the Fed has enough data to assess the economy’s strength and should taper even amid fiscal “uncertainty.” The central bank next convenes Oct. 29-30.
The Fed stimulus has helped propel the S&P 500 up by more than 150% from its March 2009 low. The gauge has surged 21% this year and jumped to its previous intraday record of 1,729.86 on Sept. 19, a day after the Fed unexpectedly delayed tapering at its last policy meeting.
The rally in stocks this year has pushed valuations to a three-year high and is the broadest since at least 1990. The S&P 500 trades at 16.5 times reported operating profit, a 17% increase from the beginning of 2013, according to data compiled by Bloomberg. Some 445 stocks in the gauge have posted year-to- date gains through yesterday, data show. The second-broadest advance in the period was in 1995, when 434 stocks in the benchmark gained through Oct. 16.
Equities could come under pressure as companies from Knoll Inc. to NCI Inc. have said they expect the shutdown to affect revenue in the last three months of the year.
“We are going to see a lower equity market and a longer period of lower rates” if corporate earnings start to deteriorate in the fourth quarter, BlackRock Inc. Chief Executive Officer Laurence D. Fink, who as head of the world’s biggest money manager oversees $4.1 trillion in assets, said today on “Market Makers” with Erik Schatzker and Stephanie Ruhle.
Knoll, an officer furniture maker, estimates about $10 million of government business to be pushed into next year, CEO Andrew Cogan said. Stanley Black & Decker Inc.’s shares yesterday dropped 14%, the most since 1992, after the toolmaker reduced its full-year profit forecast in part because of the shutdown. Campbell Soup Co. has seen consumers pull back after a year that included higher payroll taxes, along with the impasse in Washington, CEO Denise Morrison said.
Profits for S&P 500 companies probably grew 8.8% in the fourth quarter, according to analysts’ estimates compiled by Bloomberg as of Oct. 11.
“So far, we think earnings will be resilient, even to what happened in Washington,” Andres Garcia-Amaya, global market strategist at JPMorgan Chase & Co.’s mutual funds unit, said in a phone interview today. His firm oversees $400 billion. “Short term,you might still have the sour taste of what happened the last couple of weeks. Fundamentally, the economy still has plenty of pent-up demand. The balance sheets of the consumer are actually in decent shape.”
S&P Ratings Services yesterday said the shutdown has shaved at least 0.6% off of fourth-quarter 2013 gross domestic product growth, or taken $24 billion out of the economy. IHS Inc. of Lexington, Massachusetts, reduced its GDP growth estimate for the period to 1.6%, from 2.2% in September.
The U.S. economy will expand by 1.6% this year, according to economists surveyed by Bloomberg. That would be the slowest rate of annual growth since 2009.
A report today showed that more Americans than forecast filed applications for unemployment benefits last week. California continued to work through a backlog, indicating it will take time to gauge the impact of the federal shutdown.
The shutdown has delayed government data releases, including the Labor Department’s September employment report.
At the same time, Americans in October were the most pessimistic about the nation’s economic prospects in almost two years as concern mounted that continued political gridlock will hurt the expansion. The monthly Bloomberg Consumer Comfort Index expectations gauge plunged to minus 31, the lowest level since November 2011, from minus 9 in September, a report showed today.
Some 24 companies in the S&P 500 report results today, including Google Inc. Profits for companies in the gauge probably increased 1.4% during the period as sales rose 2%, according to analysts’ estimates compiled by Bloomberg.