U.S. stocks surged while the benchmark gauge of options prices slid the most in two years as the Senate crafted a deal to end the government shutdown and raise the debt ceiling. Treasury bill rates dropped while energy led commodities higher and the yen fell against all major peers.
The Standard & Poor’s 500 Index (SPX) rallied 1.4 percent to 1,721.54 at 4 p.m. in New York, erasing yesterday’s drop and closing within 0.3 percent of its record. The VIX, the benchmark gauge of U.S. options prices, sank the most since August 2011 amid reduced demand for contracts to protect against stock losses. The yen fell 0.6 percent versus the dollar. Rates on Oct. 24 Treasury bills lost 27 basis points to 0.20 percent, erasing an earlier surge. The 10-year note yield decreased six basis points to 2.67 percent while the S&P GSCI Index of commodities climbed 0.8 percent as oil rallied 1.1 percent.
The Senate and House could vote as soon as today on the agreement that would end the 16-day-old government shutdown and allow the U.S. to continue borrowing, a day before its authority lapses. House Republicans today signaled that they will let it pass largely with Democratic votes. Senate opponents of the agreement, including Texas Republican Ted Cruz, said they won’t stall a vote.
“Our clients always assumed the deal would get done somewhere around the last minute,” Dan Greenhaus, chief global strategist at BTIG LLC in New York, said in a phone interview. “There was never really a deviation from that view. I don’t think anybody should or will get too excited about a short-term deal. We’ll just have to deal with this idiocy again towards the end of the year. That shouldn’t make anybody happy.”
Fitch Ratings put the government of the world’s biggest economy on watch for a possible credit downgrade yesterday. S&P said today the impact of the impasse was worsening by the day and had shaved at least 0.6 percent off of fourth-quarter growth, taking $24 billion out of the economy. The ratings agency forecast 2 percent annualized growth in the fourth quarter, down from the 3 percent seen last month.
Senate leaders stepped in after House Republicans’ last-minute plan to avert a U.S. default collapsed. Federal Reserve Bank of Dallas President Richard Fisher said the central bank could reduce the turmoil from any U.S. debt default, which he said is unlikely.
The White House press secretary said President Barack Obama supports the deal. Representative Kevin Brady, a Texas Republican, said on Bloomberg Television that he thinks House Republicans’ inability to come up with a plan to raise the debt limit meant that House Speaker John Boehner would have to accept whatever Senate leaders agreed upon.
“If Boehner is going to bring this to a vote on the floor, then we’re closer to getting a resolution to this, and the markets are pricing that in,” Stephen Wood, New York-based chief market strategist at Russell Investments, where he helps oversee about $237 billion, said by phone.
The S&P 500 rebounded from yesterday’s 0.7 percent drop as all 10 of its main industry groups advanced, led by financial, health-care and telephone shares. Bank of America Corp. jumped 2.2 percent as lower legal expenses and loan losses helped profit rebound. Mattel Inc. increased 1 percent after reporting earnings that topped analyst estimates.
JPMorgan Chase & Co., Goldman Sachs Group Inc. and Visa Inc. jumped at least 2.2 percent to lead gains in 27 of 30 stocks in the Dow Jones Industrial Average, sending the gauge up more than 205 points.
The Nasdaq Composite Index climbed 1.2 percent to the highest level in 13 years while the Russell 2000 Index and Dow Jones Transportation Average both closed at records.
Some 22 companies in the S&P 500 were scheduled to post quarterly results today, with American Express Co., International Business Machines Corp. (IBM) and EBay Inc. release earnings after the market closes. IBM fell more than 6 percent in extended trading at 4:35 p.m. in New York after third-quarter sales missed estimates. EBay slid 4.8 percent as its sales forecast for the fourth quarter fell short of analyst estimates before the holiday shopping season.
Profits for companies in the S&P 500 probably increased 1.4 percent during the third quarter while sales rose 2 percent, according to analysts’ estimates compiled by Bloomberg.
Speculation that lawmakers would resolve the default threat sent U.S. stocks toward the record reached Sept. 18, when the S&P 500 was up 21 percent for the year. Equities have rallied in 2013 as the Federal Reserve maintained efforts to stimulate the economy by holding interest rates near zero percent and purchasing $85 billion of bonds each month under a program known as quantitative easing.
The rally in 2013 has been the broadest in at least 23 years, with S&P 500 companies extending the streak of quarters in which they have avoided an earnings contraction to 15 and valuations holding below historic averages. Of S&P 500 members, about 90 percent are up so far in 2013, data compiled by Bloomberg show. The next-closest year was 1997, when 87 percent had advanced and the index was quadrupling.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, dropped 21 percent to 14.74 after surging 16 percent yesterday.
Rates on $120 billion of bills maturing tomorrow, when Treasury Secretary Jacob J. Lew has said the U.S. will exhaust measures being used to keep the government funded, dropped to 0.03 percent after touching 0.36 percent. Optimism an agreement is at hand bolstered demand at today’s auctions of $68 billion of four- and 52-week bills and of 189-day cash management securities in what could have been the Treasury’s last opportunity to bring in new cash under the debt limit.
Among European stocks moving today, Ziggo NV surged 6.7 percent, the most in six months, after rejecting a preliminary takeover offer from Liberty Global Plc. Danone slid 2.3 percent after the yogurt maker also lowered its full-year forecast following a product-safety scare that hurt cashflow in China. LVMH Moet Hennessy Louis Vuitton SA dropped lost 4.3 percent, the most in 16 months, as the luxury-goods company said sales at its fashion and leather-accessories business slowed in the third quarter.
The MSCI Emerging Markets Index added 0.1 percent and rose above its highest closing level in almost five months. The Shanghai Composite Index slid 1.8 percent, the most in three weeks as JPMorgan Chase & Co. cut its recommendation on Chinese stocks to underweight. Brazil’s Ibovespa increased 1.8 percent to above its highest closing level since May. The gauge has surged 5.3 percent in three sessions.
The yen weakened 0.7 percent against the euro, and Europe’s 17-nation shared currency was little changed at $1.3528. New Zealand’s currency rose to its highest level in a month as quickening inflation boosted chances of a central bank interest-rate increase.
WTI crude for November delivery climbed $1.08 to settle at $102.29 a barrel on the New York Mercantile Exchange. The contract declined 1.2 percent to $101.21 yesterday, the lowest settlement since July 2. The volume of all futures traded was 25 percent above the 100-day average. Sugar, gasoline, Brent crude and lead also climbed at least 1 percent to lead gains in 16 of 24 commodities tracked by the S&P GSCI Index.
Raw sugar for March delivery climbed 1.7 percent to 19.01 cents a pound, the biggest gain this month, after rains halted cane harvesting in Brazil, the world’s top grower. Cotton, coffee, cocoa and orange juice declined.
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