U.S. Stocks Rise as Investors Weigh Effects of Shutdown
<cite class="byline" style="margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 11px; vertical-align: baseline; background-color: transparent; width: 640px; color: rgb(111, 111, 111); display: block; font-style: normal; line-height: 1.3em; position: static !important; background-position: initial initial; background-repeat: initial initial;">By Alex Barinka & Aubrey Pringle - Oct 2, 2013 12:20 AM GMT+0800</cite>
U.S. stocks rose, after the Standard & Poor’s 500 Index fell to a three-week low, as investors speculated the economic effects of the first partial government shutdown in 17 years would be limited.
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 today. Merck & Co. jumped 2.4 percent after the company announced an overhaul that will eliminate 8,500 workers. Walgreen Co. climbed 3.8 percent as profit rose 86 percent after its customer-loyalty card boosted sales. Under Armour Inc. increased 3.8 percent as JPMorgan Chase & Co. upgraded the maker of workout clothing.
The S&P 500 rose 0.8 percent to 1,694.20 at 12:16 p.m. in New York, after falling yesterday 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. Trading in S&P 500 stocks was in line with the 30-day average at this time of day.
“We have gone through this before, it’s not too surprising that investors aren’t frightened by it,”Bruce Bittles, chief investment strategist at RW Baird & Co., said by phone from Sarasota,Florida. His firm oversees $100 billion. “The selling pressure lifted, and that has encouraged a lot of buyers here looking into buying the dip.”
The benchmark equity gauge slid 0.6 percent yesterday, bringing its slide from a Sept. 18 record to 2.6 percent, as lawmakers in Washington failed to agree on a federal budget.
Debt Ceiling
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 theCongressional 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,” Richard Sichel, who oversees about $1.9 billion as chief investment officer at Philadelphia Trust Co., said by telephone from Philadelphia.
Data Delayed
The shutdown will halt federal agency reports on the economy. A Commerce Department report on construction spending due today won’t be released as scheduled and the Labor Department won’t publish its closely watched monthly employment report on Oct. 4 if the government remains closed.
Data today from the privately run Institute for Supply Management showed U.S. manufacturingexpanded 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 pushedthe S&P 500 up as much as 155 percent from a March 2009 low.
Earnings Growth
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.
The VIX (VIX), a measure of the cost to protect against declines in the S&P 500, dropped 5.7 percent to 15.66 today, halting a three-day advance.
All 10 main S&P 500 groups climbed at least 0.4 percent today, with health-care companies rising 1.2 percent to lead advances.
WellPoint increased 2.4 percent to $85.63 and HealthNet Inc. added 3.8 percent to $32.89. JPMorgan Chase & Co. analyst Justin Lake said in a Sept. 18 note that the two companies would be most affected by any delay in the start of open enrollment. UnitedHealth Group Inc. gained 1.7 percent to $72.84.
Merck Jobs
Merck climbed 2.4 percent to $48.77 for the steepest climb in the Dow. The second-biggest U.S. drugmaker by sales will fire 8,500 workers and revamp its research and development after seeing new medicines delayed by U.S. regulators. The positions eliminated are in addition to 7,500 job cuts Merck had already announced, the company said in a statement. The firings now equal about 20 percent of the global workforce.
Walgreen added 3.8 percent to $55.85. The largest U.S. drugstore retailer, said fiscal fourth-quarter profit rose to $657 million, or 69 cents per share, in the quarter ended Aug. 31 from $353 million, or 39 cents per share, a year earlier. Chief Executive Officer Gregory Wasson has used data from loyalty-card holders’ purchases to improve the selection of merchandise in the front of Walgreen’s stores.
Ford Motor Co. rose 2.4 percent to $17.28 for its biggest increase in 3 weeks, after the Dearborn, Michigan-based carmaker reported a 5.7 percent rise in U.S. sales of cars and light trucks in September, beating estimates for no change.
Icahn, Cook
Apple Inc. climbed 2 percent to $486.23 after billionaire Carl Icahn wrote on Twitter that he “pushed hard” for a $150 billion stock buyback in talks with Chief Executive Officer Tim Cook. Icahn, who owns $1 billion in Apple shares, said he plans to continue discussions in three weeks.
The iPhone-maker announced a plan this year for a total of $100 billion in dividends and buybacks. It bought $16 billion worth of shares in the quarter that ended in June.
Under Armour added 3.8 percent to $82.47 as JPMorgan upgraded the stock to neutral from underweight, saying footwear, womenswear, and product innovation will drive sales in the North America (UA) region, which contributed to 94 percent of total revenue last year. The shares jumped 33 percent last quarter.
Netflix Target
Netflix Inc. (NFLX) gained 3.6 percent to $320.43, on track for a record close. MKM Partners LLC raised its price target for the stock to $370 from $285, saying the world’s largest subscription-streaming service’s management will be able to win customers in key international markets such as the U.K.
H&R Block Inc., the largest U.S. tax preparer, climbed 3.1 percent to $27.48. Morgan Stanley raised its recommendation on the shares to overweight, similar to a buy rating, saying implementation of the Affordable Care Act in the U.S. will expand opportunities for its health-insurance services.
Newmont Mining Corp., the largest U.S. gold producer, dropped 4.1 percent to $26.95, its lowest since Aug. 8. The precious metal slumped below $1,300 an ounce today, touching its lowest level in seven weeks.
To contact the reporters on this story: Alex Barinka in New York at [email protected]; Aubrey Pringle in New York at [email protected]
To contact the editor responsible for this story: Lynn Thomasson [email protected]
