U.S. Stocks Rise as Investors See Limited Shutdown ImpactAlex Barinka and Aubrey Pringle
U.S. stocks rose, after the Standard & Poor’s 500 Index fell to a three-week low yesterday, as investors speculated that the economic effects of the first partial government shutdown in 17 years would be limited.
WellPoint Inc. added 3 percent to pace gains among health-care providers as open enrollment for the new exchanges mandated by the Affordable Care Act began today. Merck & Co. advanced 2.4 percent after the company announced an overhaul that will eliminate 8,500 workers. Walgreen Co. climbed 4.5 percent as profit rose 86 percent after its customer-loyalty card boosted sales. Under Armour Inc. increased 4.1 percent as JPMorgan Chase & Co. upgraded the maker of workout clothing.
The S&P 500 rose 0.8 percent to 1,695 at 4 p.m. in New York, after falling yesterday for the seventh time in the past eight sessions. The Dow Jones Industrial Average added 62 points, or 0.4 percent, to 15,191.70. About 6.3 billion shares changed hands on U.S. exchanges, or 9.3 percent more than the the three-month average.
“We have gone through this before, it’s not too surprising that investors aren’t frightened by it,” Bruce Bittles, chief investment strategist at RW Baird & Co., said by phone from Sarasota, Florida. His firm oversees $100 billion. “The selling pressure lifted, and that has encouraged a lot of buyers here looking into buying the dip.”
The benchmark equity gauge slid 0.6 percent yesterday, bringing its retreat from a Sept. 18 record to 2.6 percent, as lawmakers in Washington failed to agree on a federal budget.
The resulting shutdown will put as many as 800,000 federal employees out of work temporarily and cost the U.S. at least $300 million a day in lost output at first, according to IHS Inc. That compares with the country’s $15.7 trillion economy.
The standoff may be a buying opportunity for stock investors, if history is any guide. The S&P 500 has risen 11 percent on average in the 12 months following past government shutdowns, according to data compiled by Bloomberg on instances since 1976. That compares with an average return of 9 percent over 12 months.
Congress also faces a dispute over raising the $16.7 trillion debt ceiling this month. The Treasury has said measures to avoid exceeding the borrowing limit will be exhausted on Oct. 17. The U.S. won’t have enough money to pay all of its bills at some point between Oct. 22 and Oct. 31, according to the Congressional Budget Office. Failure to increase the limit could lead to a downgrade of the government’s credit rating.
“The bigger concern that the market has had over the past few days of trading has been the debt ceiling deadline,” Wasif Latif, the San Antonio-based vice president of equity investments at USAA Investments, said by telephone. His firm oversees $57 billion. “The Fed is seen as a support or provider of the liquidity of the market. If this gets prolonged or there is a bigger issue, there is the outlook that the Fed may come in and do more or provide that support.”
The S&P 500 added 3 percent last month as the Federal Reserve unexpectedly refrained from reducing its $85 billion in monthly asset purchases. The gauge gained 4.7 percent in the third quarter. Three rounds of central-bank stimulus and better-than-forecast corporate earnings have pushed the S&P 500 up as much as 155 percent from a March 2009 low.
Investors have been scrutinizing economic reports to gauge whether growth is robust enough for the Fed to begin curtailing its stimulus at its next meeting this month.
The shutdown will halt federal agency reports on the economy. A Commerce Department report on construction spending due today won’t be released as scheduled and the Labor Department won’t publish its closely watched monthly employment report on Oct. 4 if the government remains closed.
Data today from the privately run Institute for Supply Management showed U.S. manufacturing expanded in September at a faster pace than forecast, indicating U.S. factories will provide a bigger boost to the expansion.
Earnings at S&P 500 companies grew 1.8 percent last quarter, projections compiled by Bloomberg show. Alcoa Inc., Yum! Brands Inc. and Safeway Inc. are among the 316 companies in the gauge scheduled to report in October. Analysts’ forecasts show earnings will increase at the fastest pace in two years during the fourth quarter.
The Chicago Board Options Exchange Volatility Index, or VIX, slipped 6.4 percent to 15.54 today, halting a three-day advance. The equity volatility gauge is down 14 percent this year.
All 10 main S&P 500 groups climbed more than 0.3 percent today, with health-care companies rising 1.3 percent to lead advances.
WellPoint increased 3 percent to $86.11 and Health Net Inc. added 3.6 percent to $32.84. JPMorgan analyst Justin Lake said in a Sept. 18 note that the two companies would be most affected by any delay in the start of open enrollment. UnitedHealth Group Inc. gained 1.4 percent to $72.58.
Merck climbed 2.4 percent to $48.74 for the steepest climb in the Dow. The second-biggest U.S. drugmaker by sales will fire 8,500 workers and revamp its research and development after seeing new medicines delayed by U.S. regulators. The positions eliminated are in addition to 7,500 job cuts Merck had already announced, the company said in a statement. The firings now equal about 20 percent of the global workforce.
Walgreen added 4.5 percent to $56.24. The largest U.S. drugstore retailer, said fiscal fourth-quarter profit rose to $657 million, or 69 cents per share, in the quarter ended Aug. 31 from $353 million, or 39 cents per share, a year earlier. Chief Executive Officer Gregory Wasson has used data from loyalty-card holders’ purchases to improve the selection of merchandise in the front of Walgreen’s stores.
Ford Motor Co. rose 1.9 percent to $17.19, headed for its biggest increase in 3 weeks. The Dearborn, Michigan-based carmaker reported a 5.7 percent rise in U.S. sales of cars and light trucks in September, beating estimates for no change.
Apple Inc. climbed 2.4 percent to $487.96 after billionaire Carl Icahn wrote on Twitter that he “pushed hard” for a $150 billion stock buyback in talks with Chief Executive Officer Tim Cook. Icahn, who owns $1 billion in Apple shares, said he plans to continue discussions in three weeks.
The iPhone-maker announced a plan this year for a total of $100 billion in dividends and buybacks. It bought $16 billion worth of shares in the quarter that ended in June.
Under Armour added 4.1 percent to a record $82.69 as JPMorgan upgraded the stock to neutral from underweight, saying footwear, womenswear, and product innovation will drive sales in the North America region, which contributed to 94 percent of total revenue last year. The shares jumped 33 percent last quarter.
Netflix Inc. gained 5 percent to a record $324.62. MKM Partners LLC raised its price target for the stock to $370 from $285, saying the world’s largest subscription-streaming service’s management will be able to win customers in key international markets such as the U.K.
H&R Block Inc., the largest U.S. tax preparer, climbed 4.5 percent, the most since March, to $27.86. Morgan Stanley raised its recommendation on the shares to overweight, similar to a buy rating, saying implementation of the Affordable Care Act in the U.S. will expand opportunities for its health-insurance services.
Newmont Mining Corp., the largest U.S. gold producer, dropped 3.2 percent to $27.21, its lowest since Aug. 7. The precious metal slumped below $1,300 an ounce today, touching its lowest level in seven weeks.