Markets Rise as Washington Appears to Approach Deal
Stocks finished higher after top lawmakers said they were nearing a deal to raise the federal debt ceiling and end the government shutdown.
The Dow Jones Industrial Average closed higher by 64 points, or 0.4%, at 15301. The benchmark recovered from loss of much as 101 points earlier in the session, and has gained 525 points over the last four sessions on expectations of an agreement.
The S&P 500 index rose 7 points, or 0.4%, to 1710, while the Nasdaq Composite Index gained 23 points, or 0.6%, to 3815.
A meeting between President Barack Obama and Senate and House leaders Monday afternoon was postponed to allow lawmakers to work on a resolution that would raise the debt limit and reopen the government, the White House said in a statement. The wrangling comes just days away from a deadline set by the Treasury Department to raise the federal borrowing limit.
Equity markets have been sensitive to events in Washington, rallying when a deal looks close and retreating at signs of gridlock.
Although investors worry about the consequences of a default on U.S. debt—many believe such an event could be disastrous for stocks—market participants were increasingly confident that Washington will avert a government cash crunch this week.
“The fact that we are having ongoing discussions and dialogue rather than rhetoric has led investors to become more confident that a deal will be struck,” said Paul Mangus, head of equity strategy and research for Wells Fargo Private Bank in Charlotte, N.C. Mr. Mangus said he is advising clients to remain neutral on the stock market and hedge against a decline if they are nervous.
Even though a deal appeared in sight Monday, many investors have been positioning themselves for a volatile period in the markets. Several large financial firms have been shedding short-term government debt because of worries that there won’t be a deal by Thursday.
Other investors were girding for stock-market declines using strategies such as hedging and paring back some riskier holdings, said Ed Lashinski, director of global strategy and execution for RBC Capital Markets’ futures group.
“The market is like the old Road Runner cartoons … [It has] run off the cliff, and it just hasn’t looked down yet,” he said.
John Buckingham, chief investment officer of AFAM Capital in Aliso Viejo, Calif., said his firm is holding a larger cash position than normal. “That’s what we’re doing in terms of risk mitigation,” he said.
But Mr. Buckingham, whose firm manages $750 million, said he is optimistic that the raft of earnings news this week would offer opportunities to get back into the market. “Finding bargains is harder than [it has] been, but they’re still out there,” he said. He added that he bought some stock of Whirlpool, which was down Monday.
Many investors say it is unclear how firm Thursday’s deadline is. The Treasury has said that on Thursday it will be left with $30 billion in cash to pay the government’s bills. That amount could run out in a week or two.
Tim Hopper, chief economist at TIAA-CREF, said the Treasury would likely be able to avoid a default on U.S. debt for a few weeks after Thursday’s deadline. “Projections that we’ve seen and payment schedules that we’ve seen indicate something toward the end of October is when you have to make tough decisions,” he said.
Mr. Hopper said he still believes Washington will reach an agreement to avoid a default on Treasury debt, and said investors should ride out the current bout of market volatility.
The standoff in Washington has largely overshadowed other events in the market, including the large number of quarterly earnings set for this week. Companies in the S&P 500 index are on pace for year-over-year earnings growth of 0.8% in the third quarter, a slowdown from the first quarter’s growth of 3.4% and the second quarter’s growth of 2.3%, according to FactSet. Much of that slowdown is due to the unusual quarterly loss reported by J.P. Morgan Chase on Friday.
The Treasury market is closed for the Columbus Day holiday.
October gold futures climbed 0.7% to $1,276.40 an ounce. Gold fell 3.2% last week to settle at a three-month low Friday. November crude-oil futures gained 0.4% to settle at $102.41 a barrel Monday.
The dollar was lower against the euro and little changed against the yen.
Overseas markets were mixed, as jitters over the gridlock in Washington spread around the globe. The Stoxx Europe 600 finished 0.2% higher.
Australia’s S&P ASX 200 fell 0.4%, while China’s Shanghai Composite eked out a 0.4% gain. Japanese markets were closed for a holiday.
In corporate news, Netflix rose after The Wall Street Journal reported the company was in talks with several pay-television providers to make its online video service available on set-top cable boxes.