By Damien J Trois and Alex Veiga
Technology companies helped lift shares on Wall Street broadly on Thursday as investors welcomed the end of the impasse in Congress over raising the federal debt limit.
An agreement in December to temporarily extend the government’s borrowing authority gives lawmakers more time to reach a permanent solution, now thanks to an unprecedented federal default that experts say would have devastated the economy.
The S&P 500 rose 0.8%, its third-straight gain. Nearly 80 per cent of the benchmark index’s stocks rose. The Dow Jones Industrial Average rose 1%, while the tech-heavy Nasdaq closed 1.1% higher.
Debt limits debate and the prospect of unprecedented federal defaults are among the many concerns weighing on the market. Those concerns sent the benchmark S&P 500 swinging between daily gains and losses of more than 1% for four days.
Senate leaders announced a deal Thursday to extend the government’s borrowing authority until December. The move comes a day after a proposal by Senate GOP leader Mitch McConnell that paved the way for an emergency extension of the debt limit.
Greg Basuk, CEO of Axus Investments, said the tentative agreement between Republicans and Democrats has helped give investors optimism that Congress can compromise in other areas.
“The fact that this has actually happened, we think, clearly, we’re seeing an outsized reaction in the market today because of the sentiment, ‘Hey, maybe there’s more to be done,'” he said. .
The S&P 500 closed 36.21 points higher at 4,399.76. The Dow rose 337.95 points to 34,754.94 and the Nasdaq rose 152.10 points to 14,654.02.
A measure of confidence in economic growth Small company stocks also registered gains. The Russell 2000 Index rose 35.14 points, or 1.6%, to 2,250.09. Markets in Europe and Asia also closed with gains.
Technology stocks driven a substantial portion of the S&P 500’s gains. Apple rose 0.9% and chipmaker Nvidia 1.8%.
Automakers were the big winners among consumer discretionary sector stocks. Ford Motor rose 5.5% and General Motors 4.7%.
Health insurance companies helped raise health sector companies. Humana rose 2.9%, while UnitedHealth Group added 2.7%.
Cruise lines were involved in the market decline. Norwegian Cruise Line fell 2.2% and Carnival fell 1.7%. Royal Caribbean dropped 1.4%.
Energy futures prices bounced back after the US Department of Energy said it did not plan to exploit oil reserves. US crude oil prices rose 1.1%.
Bond yields rose. The yield on the 10-year Treasury rose to 1.57% from 1.52% late Wednesday.
COVID-19 is hindering economic recovery after a surge in cases over the summer. Consumer spending and job growth had stalled and supply chain problems disrupted operations in a wide range of industries.
More positive news came from Pfizer on Thursday about fighting future spikes in the virus. It asked US regulators to allow the use of its COVID-19 vaccine in children between the ages of 5 and 11. The drug developer’s stock rose 1.7%.
Investors got another encouraging news Thursday after the Labor Department reported that the number of Americans applying for unemployment benefits fell last week for the first time in four weeks. The labor market is struggling to recover from the initial impact of the pandemic 18 months ago, when the COVID-19 lockdown hit jobs.
Wall Street will get another snapshot of the job market and its recovery on Friday when the Labor Department releases its employment report for September. The job market recovery has been closely watched for any clues on how quickly the Federal Reserve will ease its unprecedented support for markets and the economy. Inflation also remains a major concern as persistently high inflation could prompt the central bank to raise interest rates sooner than expected.
Jason Pride, chief investment officer for private property at Glenmead, said Friday’s jobs report will have little impact on the Fed’s plans to reduce bond purchases and begin raising interest rates. Much of the mismatch between a slowdown in employment growth and an increase in job openings is circumstantial, such as people holding off on returning to the workforce to care for families or learning new skills to find different jobs, he said.
“I don’t think there’s anything that the Fed does with interest rates changes or bond purchases that will change people’s decisions about when they return to the workforce,” he said. “It’s time to start taking the foot off the pedal.”
Once the Fed actually starts reducing its bond purchases, Wall Street could see less volatility, as “people will get comfortable with the momentum and they will see that the market and the economy can handle it.”