S&P 500 Rises to Highest Since September on Debt Talks

U.S. stocks rose, sending the Standard & Poor’s 500 Index to the highest level since September, on speculation lawmakers were making progress toward an agreement on raising the debt limit to avoid a default.

Johnson & Johnson advanced 1.9 percent as Goldman Sachs Group Inc. boosted the stock’s rating. An index of homebuilders climbed 2 percent amid analyst upgrades. Cognizant Technology Solutions Corp. climbed 5.5 percent after Infosys Ltd. raised its revenue forecast. Gap Inc. dropped 6.7 percent as its September sales missed analysts’ estimates.

The S&P 500 increased 0.6 percent to 1,703.20 at 4 p.m. in New York, erasing losses since the government’s partial shutdown that began Oct. 1. The Dow Jones Industrial Average climbed 111.04 points, or 0.7 percent, to 15,237.11, the highest level since Sept. 27. About 5.7 billion shares changed hands on U.S. exchanges, 3 percent below the three-month average.

“We are picking up smoke signals that there are constructive talks,” Jim Russell, who helps oversee $112 billion as a senior equity strategist for US Bank Wealth Management, said by phone from Cincinnati. “It doesn’t take much imagination to see that a framework is coming together for a temporary extension of the budget ceiling, and then negotiations to reopen the government as early as next week. We do think that things are moving forward.”

The S&P 500 yesterday jumped 2.2 percent, the most since Jan. 2, on a House Republican proposal for a short-term increase in the debt ceiling that would reduce the prospects for a U.S. default. The index gained 0.8 percent this week and is about 1.3 percent away from a record 1,725.52 reached on Sept. 18.

Debt Limit

House and Senate Republicans are starting to narrow their demands for health-care law changes in the U.S. fiscal impasse as they challenge President Barack Obama’s unwillingness to attach such revisions to a bill to end the government shutdown.

Obama has insisted that he won’t negotiate any conditions to ending the 11-day-old shutdown or extending U.S. borrowing authority past Oct. 17. Obama and House Speaker John Boehner spoke this afternoon by telephone.

Without an increase to the debt limit, the U.S. will exhaust its borrowing authority on Oct. 17 and would run out of funds to pay all of its bills sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

‘It’s Critical’

“The quicker we can get this sideshow out of the way, the quicker that investors can focus on the actual fundamentals,” Russell said. “It’s critical because every day that we’re hanging out there without the federal government being up and running, it damages the economy, it damages earnings, it damages investor confidence.”

The U.S. must take “urgent action” to resolve the political logjam, the Group of 20’s central bankers and finance ministers said in a statement during their meeting in Washington today.

The partial federal government shutdown lasting through the end of this week would pare 0.2 percentage point from U.S. economic growth and cost as much as 0.5 point if it continues another two weeks, according to the median estimate in a Bloomberg survey of economists taken Oct. 4-9.

Data today showed consumer sentiment in the U.S. fell in October to a nine-month low as the shutdown and the debt-ceiling debate caused outlooks to sour. The Thomson Reuters/University of Michigan preliminary consumer sentiment index slid to 75.2 this month from 77.5 in September. Economists projected a drop to 75.3, according to the median estimate in a Bloomberg survey.

Monetary Stimulus

Better-than-expected earnings and three rounds of monetary stimulus from the Federal Reserve have helped drive the S&P 500 up as much as 155 percent from a 12-year low. The benchmark gauge has rallied 19 percent this year as data from manufacturing to housing and the labor market improved.

“Remove everything that’s going on in Washington and focus on global economic growth and earnings, it should be clear that things are picking up,” Joseph Tanious, global market strategist for J.P. Morgan Asset Management, said by phone from New York. His firm oversees about $1.5 trillion.

With few economic reports available during the shutdown, investors are watching third-quarter corporate earnings. Profits for companies in the S&P 500 probably increased 1.4 percent during the three months while sales rose 2 percent, according to analysts’ estimates compiled by Bloomberg.

Financial Earnings

JPMorgan Chase & Co. today reported its first quarterly loss under Chief Executive Officer Jamie Dimon after taking a $7.2 billion charge for legal expenses. Earnings on an adjusted basis still beat analysts’ estimates. The shares fell 1 cent to $52.51.

Wells Fargo & Co. also fell 1 cent, to $41.43. While profit rose in the third quarter, the largest U.S. home lender posted declines in revenue, the net interest margin and its backlog of new mortgage loans, and the company failed to cut costs as much as some analysts predicted.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, fell 4.6 percent to 15.72. The index has slumped 23 percent over the past three days, the most since April.

All 10 main industries in the S&P 500 rose as energy, consumer-discretionary and technology companies climbed at least 0.8 percent to lead the gains.

The Russell 2000 Index, a benchmark measure for smaller companies, rallied 1.4 percent to 1,084.32, within four points of breaking its all-time high reached on Oct. 1.

Johnson & Johnson climbed 1.9 percent to $89.45 for the biggest increase in the Dow. The seller of health-care products was raised to neutral from sell at Goldman Sachs.

Builders Upgrade

The S&P Supercomposite Homebuilding Index gained 2 percent as all its 11 members advanced. Jack Micenko, an analyst with Susquehanna International Group LLP, boosted his rating for Lennar Corp. and KB Home to positive from neutral on expectation demand may hold up for the rest of the year. Lennar advanced 3 percent to $34.82 and KB Home added 2.2 percent to $16.99.

Cognizant, a provider of consulting and outsourcing services, gained 5.5 percent to a record $88.85. Infosys, India’s second-largest software exporter, increased its full-year sales forecast as economic recovery spurs European clients to boost spending on services. Cognizant employs about 75 percent of its workforce in India.

Safeway Inc., the second-largest U.S. grocery-store chain, rose 6.9 percent to $33.75. The company said identical-store sales will rise as much as 1.9 percent this year. Safeway also said it will leave Chicago by selling its stores there.

Gap Slump

Gap plunged 6.7 percent, the most since Dec. 4, to $36.83. The biggest U.S. specialty-apparel retailer said same-store sales fell 3 percent, trailing the average estimate for a 1.8 percent gain from analyst forecasts compiled by Retail Metrics.

Micron Technology Inc., the largest U.S. maker of memory chips, tumbled 8.6 percent to $16.84 even as the company reported fiscal fourth-quarter sales that exceeded analysts’ estimates. Following the report, Wells Fargo lowered its recommendation on the shares to underperform, or sell, from market perform, or hold, citing valuation. The stock has almost tripled this year.

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