IBJNews

Stocks soar on optimism for debt deal in Congress

Back to TopCommentsE-mailPrintBookmark and Share

Wall Street finally got the deal it's been waiting for.

A last-minute agreement to keep the U.S. from defaulting on its debt and reopen the government sent the stock market soaring Wednesday, pushing the Standard & Poor's 500 index close to a record high.

On Wednesday, Senate leaders agreed to fund the government through Jan. 15 and allow government borrowing through Feb. 7. The government has been partially shut for 16 days because House Republicans had demanded changes to the President Obama's health care law before passing a budget.

Wednesday's Senate deal was reached just hours before a Thursday deadline that Treasury Secretary Jacob Lew had set to raise the $16.7 trillion debt limit.

The agreement follows a month of rancorous political gridlock that threatened to make America a deadbeat and derail global financial markets. Even so, investors have stayed largely calm throughout in the current drama in Washington, with the S&P 500 actually gaining 2.1 percent since the shutdown began on Oct. 1.

Wall Street had bet big that politicians wouldn't let U.S. default, a calamity economists said could paralyze lending, slow the economy and cause another recession.

If the deal wraps up soon, investors can turn their attention back to basics like earnings and the economy. Corporations have begun to report third-quarter earnings, but Wall Street has been glued to the budget brinksmanship. Overall earnings growth for companies in the S&P 500 is forecast at 3.13 percent from a year earlier. That's slower than growth of 4.9 percent in the second quarter and 5.2 percent in the first quarter.

It'll be harder for Wall Street to get up-to-date view of the economy because the partial government shutdown since Oct. 1 has kept agencies from releasing key reports on trends like hiring. In general, though, the economy has been expanding this year.

Traders have been correctly betting that Washington would reach a deal. To be sure, the Dow went through rough patches over the last month, at one point falling as much as 900 points below an all-time high reached on Sept. 18. The Dow has seen seven triple-digit moves in the last 10 trading days.

The feeling among stock traders in recent days was that panicking and pulling money out of stocks could leave them missing out on a rally after Washington finally came to an agreement. Investors are also becoming inured to Washington's habit of reaching budget and debt deals at the last minute.

"Investors have become, unfortunately, accustomed to some of the dysfunction," said Eric Wiegand, a senior portfolio manager at U.S. Bank. "It's become more the norm than the exception."

In the summer of 2011, the S&P 500 index plunged 17 percent between early July and early August as lawmakers argued over raising the debt limit and Standard & Poor's cut the U.S. credit rating from 'AAA,' its highest ranking. The market later recovered.

Stocks also slumped in the last two weeks of 2012 as investors fretted that the U.S. would go over the "fiscal cliff" as lawmakers argued over a series of automatic government spending cuts. Stock also rebounded and embarked on a strong rally that has pushed the S&P 500 up almost 21 percent this year.

Some were glad that investors could now turn their focus back to the traditional drivers of the stock market rather than worrying whether the latest dispatch from Washington would shake stocks.

"It's a little bit silly in the short term for markets to go down so much on press conferences and then to go up so much on rumors," said Brad Sorensen, director of market and sector research at the Schwab Center for Financial Research. "We've urged investors to pull back a little bit and look at the longer term."

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. I am a Lyft driver who is a licensed CDL professional driver. ALL Lyft drivers take pride in providing quality service to the Indianapolis and surrounding areas, and we take the safety of our passengers and the public seriously.(passengers are required to put seat belts on when they get in our cars) We do go through background checks, driving records are checked as are the personal cars we drive, (these are OUR private cars we use) Unlike taxi cabs and their drivers Lyft (and yes Uber) provide passengers with a clean car inside and out, a friendly and courteous driver, and who is dressed appropriately and is groomed appropriately. I go so far as to offer mints, candy and/or small bottle of water to the my customers. It's a mutual respect between driver and passenger. With Best Regards

  2. to be the big fish in the little pond of IRL midwest racin' when yer up against Racin' Gardner

  3. In the first sentance "As a resident of one of these new Carmel Apartments the issue the local governments need to discuss are build quality & price." need a way to edit

  4. As a resident of one of these new Carmel Apartments the issue the local governments need to discuss is build quality & price. First none of these places is worth $1100 for a one bedroom. Downtown Carmel or Keystone at the Crossing in Indy. It doesn't matter. All require you to get in your car to get just about anywhere you need to go. I'm in one of the Carmel apartments now where after just 2.5 short years one of the kitchen cabinet doors is crooked and lawn and property maintenance seems to be lacking my old Indianapolis apartment which cost $300 less. This is one of the new star apartments. As they keep building throughout the area "deals" will start popping up creating shoppers. If your property is falling apart after year 3 what will it look like after year 5 or 10??? Why would one stay here if they could move to a new Broad Ripple in 2 to 3 years or another part of the Far Northside?? The complexes aren't going to let the "poor" move in without local permission so that's not that problem, but it the occupancy rate drops suddenly because the "Young" people moved back to Indy then look out.

  5. Why are you so concerned about Ace hardware? I don't understand why anyone goes there! Every time ive gone in the past, they don't have what I need and I end up going to the big box stores. I understand the service aspect and that they try to be helpful but if they are going to survive I think they might need to carry more specialty parts.

ADVERTISEMENT