Stocks Hit a Record as Investors See Progress Toward a Spending Deal
After weeks of fluctuations driven in part by Washington gridlock, share prices hit another high and put a dismal September in the rearview mirror.Wall Street likes what it’s hearing from Washington lately.The S&P 500 inched to a new high on Thursday, continuing a rally aided by signs of progress in spending talks that could pave the way for an injection of some $3 trillion into the U.S. economy.The index rose 0.3 percent to 4,549.78, its seventh straight day of gains and a fresh peak after more than a month of volatile trading driven by nervousness over the still-wobbly economic recovery and policy fights in Washington.The S&P 500’s performance this year
Source: S&P Dow Jones IndicesBy The New York TimesBut even baby steps by lawmakers have helped end a market swoon that began in September.Share prices began to rise this month when congressional leaders struck a deal to allow the government to avoid breaching the debt ceiling, ending a standoff that threatened to make it impossible for the country to pay its bills. The rally has gained momentum as investors and analysts grow increasingly confident about a government spending package using a recipe Wall Street can live with: big enough to bolster economic growth, but with smaller corporate tax increases than President Biden’s original $3.5 trillion spending blueprint.“It seems like we’re kind of reaching a middle ground,” said Paul Zemsky, chief investment officer, multi-asset strategies at Voya Investment Management. “The president himself has acknowledged it’s not going to be $3.5 trillion, it’s going to be something less. The tax hikes are not going to be as much as the left really wanted.”Share prices had marched steadily higher for much of the summer, hitting a series of highs and cresting on Sept. 2. But a number of anxieties sapped their momentum as the certainty that markets crave began to evaporate. Gridlock over government spending, continuing supply chain snarls, higher prices for businesses and consumers and the Federal Reserve’s signals that it would begin dialing back its stimulus efforts all helped sour investor confidence. The S&P 500’s 4.8 percent drop in September was its worst month since the start of the pandemic.It has made up for it in October, rising 5.6 percent this month. But it’s not just updates out of Washington that have renewed investors’ optimism.The country has seen a sharp drop in coronavirus infections in recent weeks, raising, once again, the prospect that economic activity can begin to normalize. And the recent round of corporate earnings results that began in earnest this month has started better than many analysts expected. Large Wall Street banks, in particular, reported blockbuster results fueled by juicy fees paid to the banks’ deal makers, thanks to a surge of merger activity.Elsewhere, shares of energy giants have also buoyed the broad stock market. The price of crude oil recently climbed back above $80 a barrel for the first time in roughly seven years, translating into an instant boost to revenues for energy companies.But the recent rally seemed find its footing two weeks ago. On Oct. 6, word broke that Senator Mitch McConnell of Kentucky, the Republican leader, was willing to offer a temporary reprieve allowing Congress to raise the debt ceiling. The market turned on a dime from its morning slump, finishing the day in positive territory. That week turned out to be the market’s best since August.Once done as a matter of course in Washington, raising the debt ceiling has been an increasingly contentious issue in recent years — with sometimes serious implications for the market. In August 2011, a rancorous battle over the debt ceiling sent share prices tumbling sharply as investors began to consider the prospect that the United States could actually default on its debts.But the recent deal on the ceiling — even though it only pushed a reckoning into December — suggested to investors that there’s little appetite in Washington for a replay of a decade ago.“I think that let some pressure out of the system,” said Alan McKnight, chief investment officer of Regions Asset Management. “What it signaled to the markets was that you can find some area of agreement. It may not be very large. But at least they can come together.”With the impasse broken, the rally gained strength. Last Thursday, the S&P 500 jumped 1.7 percent — its best day in roughly seven months — as financial giants like Morgan Stanley and Bank of America reported stellar results.Potential progress on a deal in Washington has only brightened investors’ outlook.“Democrats are now moving in the same direction, and hard decisions are being made,” wrote Dan Clifton, an analyst with Strategas Research, who monitors the impact of policy on financial markets, in a note to clients on Wednesday.Understand the U.S. Debt CeilingCard 1 of 6What is the debt ceiling? More
