Stocks rise as investors weigh effects of shutdown

October 1, 2013

U.S. stocks rose Tuesday as investors speculated that the economic effects of the first partial government shutdown in 17 years would be limited.

Other events had a strong effect on industry sectors. For example, WellPoint Inc. added 2.4 percent to pace gains among health-care providers as open enrollment for the new exchanges mandated by the Affordable Care Act began Tuesday.

The S&P 500 rose 0.8 percent to 1,694.20 in the early afternoon, after falling Monday for the seventh time in the past eight sessions. The Dow Jones Industrial Average gained 57.60 points, or 0.4 percent, to 15,187.27.

“We have gone through this before, it’s not too surprising that investors aren’t frightened by it,” said Bruce Bittles, chief investment strategist at RW Baird & Co., which oversees $100 billion. “The selling pressure lifted, and that has encouraged a lot of buyers here looking into buying the dip.”

Lawmakers in Washington failed to agree Monday 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.

Congress now 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 S&P 500 has risen 11 percent on average in the 12 months following a government shutdown, according to data compiled by Bloomberg since 1976. That compares with an average return of 9 percent over 12 months.

“This is a case of yes, this is a a big ugly story, but politicians do usually find a way to patch things up,” said Richard Sichel, who oversees about $1.9 billion as chief investment officer at Philadelphia Trust Co.

The shutdown will halt federal agency reports on the economy. A Commerce Department report on construction spending due Tuesday won’t be released as scheduled, and the Labor Department won’t publish its closely watched monthly employment report on Friday if the government remains closed.

Data Tuesday 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.

Investors have been scrutinizing economic reports to gauge whether growth is robust enough for the Federal Reserve to begin curtailing its stimulus.

The S&P 500 added 3 percent last month as the central bank unexpectedly refrained from reducing its $85 billion in monthly asset purchases. The gauge gained 4.7 percent in the third quarter. Three rounds of Fed stimulus and better-than-forecast corporate earnings have pushed the S&P 500 up as much as 155 percent from a March 2009 low.

Earnings at S&P 500 companies expanded 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.


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