Senate budget agreement sends stocks soaring
NEW YORK — Wall Street finally got the deal it's been waiting for.
A last-minute agreement to keep the nation from defaulting on its debt and reopen the government sent the stock market soaring on Wednesday, pushing the Standard & Poor's 500 index close to a record high.
Senate leaders agreed to fund the government through Jan. 15 and extend government borrowing through Feb. 7.
The Senate deal was reached just hours before a Thursday deadline that Treasury Secretary Jacob Lew set to raise the $16.7 trillion debt limit. The government has been partially shut for 16 days because House Republicans had demanded changes to President Obama's health care law before passing a budget.
The agreement arrived at the end of a month of political gridlock that threatened to make America a deadbeat and derail global financial markets. Investors have stayed largely calm during the drama in Washington, with the S&P 500 gaining 2.4 percent since the shutdown began on Oct. 1.
Wall Street had bet that politicians wouldn't allow the default, which some economists said could paralyze lending and push the economy into another recession.
“We knew it was going to be dramatic, but the consequences of a U.S. default are just so severe that the base case was always that a compromise was going to be reached,” said Tom Franks, a managing director at TIAA CREF, a large retirement fund manager.
Congress was racing to pass the legislation in a night session.
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 brinkmanship. Overall earnings at companies in the S&P 500 index is forecast to grow 3.1 percent from a year earlier, according to data from S&P Capital IQ. That's slower than the 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 an up-to-date view of the economy because the partial government shutdown has kept agencies from releasing key reports on trends such as 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 during the past month, at one point falling as much as 900 points below an all-time high reached on Sept. 18. The Dow has made seven triple-digit moves in the last 10 trading days.
The Dow climbed 205.82 points, or 1.4 percent, to 15,373.83. The S&P 500 gained 23.48, or 1.4 percent, to 1,721.54. That's only four points below its record close of 1,725.52 set on Sept. 18.
The Nasdaq composite climbed 45.42, or 1.2 percent, to 3,839.43.
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 when Washington finally came to an agreement. Investors are 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 recovered.
Stocks slumped in the last two weeks of 2012 as investors fretted that the United States would go over the “fiscal cliff” as lawmakers argued over a series of automatic government spending cuts. Stock 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 return their focus to the traditional drivers of the 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.”
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Pittsburgh angles to keep Heinz headquarters in merger
- Michigan man takes Heinz to court over Dip & Squeeze ketchup packet
- Stop foreign dumping, U.S. Steel CEO Longhi tells Congress
- Pa. Gas & Electric agrees to $6.8 million settlement of polar vortex claims
- Heinz merging with Kraft in mega-deal; headquarters to stay in Pittsburgh
- Federal Trade Commission cracks down on crooked vehicle sales
- Energy Department OKs loan of $259M to Alcoa to promote clean energy
- Toyota to carry new attitude into production
- Federal government eyes regulation of payday lending
- One secret Facebook doesn’t want you to know
- Court approves LightSquared’s bankruptcy exit plan