S&P 500 surges to record on Fed stimulus bets after debt deal

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.

‘Fiscal Shenanigans’

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.

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