U.S. stocks rise as optimism grows over ending budget impasse

AFTER SEVERAL DAYS of financial tension caused by the government shutdown and the possibility of the U.S. defaulting on its debt, stocks rose Friday on optimism that lawmakers would reach a deal. / BLOOMBERG NEWS FILE PHOTO/JIN LEE
AFTER SEVERAL DAYS of financial tension caused by the government shutdown and the possibility of the U.S. defaulting on its debt, stocks rose Friday on optimism that lawmakers would reach a deal. / BLOOMBERG NEWS FILE PHOTO/JIN LEE

NEW YORK – U.S. stocks rose, with the Standard & Poor’s 500 Index trimming its weekly decline, as optimism grew that the lawmakers would reach a deal to end the budget impasse and avoid a default on the federal debt.

Visa Inc. rose 0.8 percent after a judge ruled the company didn’t infringe a SmartMetric Inc. patent. Facebook Inc. climbed 2 percent after the operator of the world’s most popular social network said it will sell advertising on its Instagram photo service. Union Pacific Corp. declined 1 percent after its earnings forecast missed analysts’ projections.

The S&P 500 climbed 0.3 percent to 1,683.49 at 11:20 a.m. in New York, paring an earlier gain of as much as 0.5 percent. The Dow Jones Industrial Average added 21.03 points, or 0.1 percent, to 15,017.51. Trading in S&P 500 stocks was 11 percent below the 30-day average at this time of day.

“There’s a working presumption that this is fundamentally theater and it’s going to work itself out favorably,” Mackintosh Pulsifer, vice chairman and chief investment officer of Fiduciary Trust Co. International in New York, said in a phone interview. He helps oversee $15 billion. “There will not be a default, we’ll find some way to raise the debt ceiling, and government workers will go back to work. In a few weeks it’s not going to have any impact.”

- Advertisement -

The S&P 500 has fallen 0.5 percent this week as the first partial government shutdown in 17 years began on Oct. 1, placing as many as 800,000 federal employees on unpaid leave and closing some services.

Boehner comments

House Speaker John Boehner reiterated today that he won’t allow the U.S. to default on its debt, even if that requires Democratic votes as House Republicans met in Washington to find a solution to the budget impasse.

Equities pared advances after Boehner said reopening the government must start with negotiations and that he has no intention of ‘rolling over’ on spending concessions.

Pacific Investment Management Co.’s Bill Gross and BlackRock Inc.’s Larry Fink said the showdown will be resolved without a debt default.

“It’s theatrics posed by politicians to get ratings or to get their way via legislation,” Gross said yesterday at an event in Beverly Hills, Calif.

The budget impasse has raised concern that lawmakers will be unable to make progress on a deal to increase the debt limit. The Treasury has said measures to avoid exceeding the $16.7 trillion cap will be exhausted by Oct. 17 and warned yesterday that a default could have catastrophic consequences that might last decades.

‘Bigger concern’

“A federal default is a bigger concern for markets than the budget disagreement,” said Manish Singh, who helps manage $2 billion as head of investments at Crossbridge Capital in London. “It’s good that the House speaker is determined to prevent a U.S. default even if the debt-ceiling bill does not have majority Republican support. ”

The shutdown delayed the release of the Labor Department’s monthly payrolls report, which was due today. The lack of data is making it harder for Federal Reserve policy makers to assess the health of the economy as they consider when to start paring unprecedented monetary stimulus.

The shortage “would tend to make me somewhat more cautious” about reducing the monthly pace of bond purchases, Atlanta Fed President Dennis Lockhart said yesterday.

Fed Bank of San Francisco President John Williams estimated yesterday a two-week government halt would shave 0.25 percentage point off fourth-quarter economic growth.

Volatility gauge

The S&P 500 has still rallied 18 percent this year, fueled by Fed stimulus and better-than-forecast corporate earnings that have helped the gauge rally more than 150 percent from a March 2009.

The Chicago Board Options Exchange Volatility Index, or VIX, dropped 2.2 percent to 17.28 today, trimming its weekly gain to 12 percent. The equity volatility gauge closed yesterday at the highest level since June 25.

Six of 10 main groups in the S&P 500 advanced, with raw- materials and health-care companies advancing at least 0.6 percent to pace gains.

Dentsply International Inc. jumped 3.5 percent to $44.75 for the biggest gain in the S&P 500. Bank of America raised its rating on shares in the dental supplies maker to buy.

Visa rallied 0.8 percent to $190.13 for the biggest gain in the Dow. U.S. District Judge Michael W. Fitzgerald in Los Angeles, in a written ruling yesterday, said Visa and MaterCard Inc. don’t infringe a patent owned by SmartMetric, a company that had sought as much as $13.4 billion for alleged use of its technology in “smart” debit and credit cards.

MasterCard added 0.3 percent to $670.91.

Instagram ads

Facebook rose 2 percent to $50.17 after saying it will sell advertising space on Instagram in its first effort to make money from its biggest ever acquisition.

In the most anticipated technology offering since Facebook, Twitter Inc. made public its S-1 prospectus yesterday and said it’s seeking to raise $1 billion. The documents suggested a valuation of $12.8 billion for the microblogging service.

Delta Air Lines Inc. rallied 3.1 percent to $25.29, extending a record after gaining for the ninth time in the past 10 sessions. CEO Richard Anderson said at a conference in New York that the carrier should have the lowest fuel costs in the industry during the third quarter.

Railroad stocks

Union Pacific dropped 1 percent to $153.88 after the railroad operator said it sees third-quarter earnings of $2.45 to $2.48 a share, compared with the average analyst forecast of $2.56. Operating revenue will increase as much as 4.5 percent, the company said, compared with a 7 percent gain predicted by analysts.

Competitor CSX Corp. slid 1.2 percent to $25.37. The rail transportation company said in a service bulletin that it expects Tropical Storm Karen to cause shipment delays of 12 to 24 hours.

Karen, with top sustained winds of 60 miles per hour, was about 275 miles south-southwest of the mouth of the Mississippi River at 8 a.m. New York time. Forecasts do not expect the storm to become a hurricane.

No posts to display