U.S. Stocks Rise as Optimism Grows Over Ending Impasse

U.S. Stocks Fluctuate as Treasuries Fall; Italy Bonds, Oil Gain
Traders work on the floor of the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

U.S. stocks rose, with the Standard & Poor’s 500 Index trimming a weekly decline, as optimism grew that the lawmakers would reach a deal to end the budget impasse and avoid a default on the federal debt.

All 10 main groups in the S&P 500 advanced at least 0.2 percent. Walt Disney Co. jumped 2 percent and Boeing Co. added 1.7 percent to pace gains among large companies. Facebook Inc. gained 3.8 percent as the operator of the world’s most popular social network said it will sell advertising on its Instagram photo service. Union Pacific Corp. declined 1 percent after its earnings forecast missed analysts’ projections.

The S&P 500 climbed 0.7 percent to 1,690.50 at 4 p.m. in New York. The Dow Jones Industrial Average added 76.10 points, or 0.5 percent, to 15,072.58. About 5.2 billion shares changed hands on U.S. exchanges, 9.6 percent below the three-month average.

“There’s a working presumption that this is fundamentally theater and it’s going to work itself out favorably,” Mackintosh Pulsifer, vice chairman and chief investment officer of Fiduciary Trust Co. International in New York, said in a phone interview. He helps oversee $15 billion. “There will not be a default, we’ll find some way to raise the debt ceiling, and government workers will go back to work. In a few weeks it’s not going to have any impact.”

The S&P 500 dropped 0.1 percent this week, trimming a decline that reached as much as 1.3 percent, as the first partial government shutdown in 17 years began on Oct. 1, placing as many as 800,000 federal employees on unpaid leave and closing some services.

Boehner Comments

House Speaker John Boehner reiterated today that he won’t allow the U.S. to default on its debt, even if that requires Democratic votes as House Republicans met in Washington to find a solution to the budget impasse. Boehner later said reopening the government must start with negotiations and that he has no intention of ‘rolling over’ on spending concessions.

Pacific Investment Management Co.’s Bill Gross and BlackRock Inc.’s Larry Fink said the showdown will be resolved without a debt default.

“It’s theatrics posed by politicians to get ratings or to get their way via legislation,” Gross said yesterday at an event in Beverly Hills, California.

Federal Reserve Bank of San Francisco President John Williams estimated a two-week government halt would shave 0.25 percentage point off fourth-quarter economic growth. A one-week closure would probably take 0.1 percentage point from economic growth, according to the median of 40 estimates in a Bloomberg survey of economists.

‘Bigger Concern’

The budget impasse has raised concern that lawmakers will be unable to make progress on a deal to increase the debt limit. The Treasury has said measures to avoid exceeding the $16.7 trillion cap will be exhausted by Oct. 17 and warned yesterday that a default could have catastrophic consequences that might last decades.

“A federal default is a bigger concern for markets than the budget disagreement,” said Manish Singh, who helps manage $2 billion as head of investments at Crossbridge Capital in London. “It’s good that the House speaker is determined to prevent a U.S. default even if the debt-ceiling bill does not have majority Republican support.”

The shutdown delayed the release of the Labor Department’s monthly payrolls report, which was due today. The lack of data is making it harder for Fed policy makers to assess the health of the economy as they consider when to start paring unprecedented monetary stimulus.

‘Useful Buffer’

Atlanta Fed President Dennis Lockhart said the shortage of economic news “would tend to make me somewhat more cautious” about reducing the pace of bond purchases. Minneapolis Fed President Narayana Kocherlakota said the stimulus serves as a “useful buffer” against fiscal policy headwinds.

“The taper is off the table for October, that is a silver lining for the market,” Phil Orlando, New York-based chief equity strategist at Federated Investors, said in a phone interview. His firm manages about $380 billion in assets. “Given the fact that there is no jobs data and given the fact that we have triggered the potential breach of the debt ceiling, in my opinion there is zero chance that the Fed is going to commence the taper at the October 29-30 FOMC meeting.”

The Fed stimulus and better-than-forecast corporate earnings have helped the S&P 500 rally 19 percent this year and as much as 155 percent from its March 2009 low.

The Chicago Board Options Exchange Volatility Index, or VIX, dropped 5.3 percent to 16.74 today, paring a weekly gain to 8.3 percent. The equity volatility gauge has fallen 7.1 percent this year.

Broad Rally

All but one of 24 groups in the S&P 500 advanced today, with real-estate stocks retreating 0.2 percent. Raw-materials and health-care companies added at least 1.1 percent to pace gains among 10 main industries.

Freeport-McMoRan Copper & Gold Inc. climbed 2.3 percent to $33.78 as copper prices rallied. Dentsply International Inc. jumped 2.9 percent to $44.49. Bank of America raised its rating on shares in the dental supplies maker to buy.

Disney climbed 2 percent to $65.30 and Boeing climbed 1.7 percent to $117.20 for the two biggest gains in the Dow.

Facebook rose 3.8 percent to $51.04 after saying it will sell advertising space on Instagram in its first effort to make money from its biggest ever acquisition. The stock has surged 92 percent in 2013.

Twitter IPO

In the most anticipated technology offering since Facebook, Twitter Inc. made public its S-1 prospectus yesterday and said it’s seeking to raise $1 billion. The documents suggested a valuation of $12.8 billion for the microblogging service.

Delta Air Lines Inc. rallied 2.7 percent to a record $25.19, capping its ninth advance in the past 10 sessions. Chief Executive Officer Richard Anderson said at a conference in New York that the carrier is not seeing any travel decline from the government shutdown. Demand is “really strong,” he said.

Lockheed Martin Corp. fell 0.3 percent to $122.50. The largest U.S. government contractor said it has identified about 3,000 employees for furloughs on Oct. 7 because of the federal shutdown. The stock has dropped six straight sessions, the longest losing streak since June.

Union Pacific dropped 1 percent to $153.90 after the railroad operator said it sees third-quarter earnings of $2.45 to $2.48 a share, compared with the average analyst forecast of $2.56. Operating revenue will increase as much as 4.5 percent, the company said, compared with a 7 percent gain predicted by analysts.

Karen Storm

CSX Corp. slid 0.4 percent to $25.57. The rail transportation company said in a service bulletin that it expects Tropical Storm Karen to cause shipment delays of 12 to 24 hours.

Karen, with top sustained winds of 50 miles per hour, was about 235 miles south-southwest of the mouth of the Mississippi River at 4:30 p.m. New York time. Forecasters do not expect the storm to become a hurricane.

Energy stocks increased 0.9 percent after oil rallied as Karen threatened crude production in the Gulf of Mexico region. Exxon Mobil Corp. rose 1 percent to $86.32.

Marathon Oil Corp. gained 2.1 percent to $34.79. The oil explorer said it has moved a rig out of the path of the storm and evacuated all workers from its Ewing Bank platform in the Gulf.