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Signs Of Progress In Washington Lead To Rally On Wall Street - U.S. Commentary


After turning in a lackluster performance in the previous session, stocks moved sharply higher over the course of the trading day on Thursday. The markets benefited from optimism about an end to the budget deadlock in Washington.

The major averages saw continued strength in the final hour of trading, closing at or near their highs for the session. The Dow jumped 323.09 points or 2.2 percent to 15,126.07, the Nasdaq soared 82.97 points or 2.3 percent to 3,760.75 and the S&P 500 surged up 36.16 points or 2.2 percent to 1,692.56.

The rally on Wall Street came amid signs that lawmakers in Washington are finally making progress toward resolving the latest fiscal crisis.

Following a meeting with their rank-and-file members, the House Republican leadership proposed legislation to temporarily raise the nation's debt limit in order to avoid a default and allow time for negotiations.

House Speaker John Boehner, R-Ohio, described that proposal as an effort to meet President Barack Obama "halfway," as that the bill would not end the government shutdown.

Obama, who is due to meet with the House GOP leadership at the White House later this afternoon, has previously indicated that he would only begin budget negotiations after the threats of both the government shutdown and default have been removed.

A White House official noted that Obama would prefer a longer debt ceiling extension but is willing to accept a temporary increase.

Earlier in the day, Treasury Secretary Jack Lew appeared on Capitol Hill in an effort to convince lawmakers of the perils of default.

Amid the focus on Washington, traders largely shrugged off a report from the Labor Department showing a sharp jump in initial jobless claims in the week ended October 5th.

The report said initial jobless claims jumped to 374,000, an increase of 66,000 from the previous week's unrevised figure of 308,000. Economists had been expecting jobless claims to edge up to 310,000.

However, the Labor Department said half of the increase in claims was due to a change in computer systems in California. The ongoing government shutdown also contributed to the jump in claims.

Sector News

After moving sharply lower over the three previous sessions, biotechnology stocks showed a substantial move back to the upside. The NYSE Arca Biotechnology Index surged up by 3.5 percent after ending the previous session at its lowest closing level in well over a month.

Gilead Sciences (GILD), Incyte (INCY), and BioMarin (BMRN) turned in some of the biotech sector's best performances on the day.

Defense stocks also turned in a particularly strong performance amid optimism about the latest developments in Washington. After ending the previous session at a one-month closing low, the Philadelphia Defense Sector Index jumped 3.1 percent.

Considerable strength was also visible among railroad stocks, as reflected by the 2.9 percent gain posted by the Dow Jones Railroads Index. Union Pacific (UNP) and Kansas City Southern (KSU) posted standout gains.

Tobacco, electronic storage, internet, and banking stocks also saw significant strength, reflecting broad based buying interest.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Thursday. Japan's Nikkei 225 Index surged up by 1.1 percent, while Hong Kong's Hang Seng Index fell by 0.4 percent.

Meanwhile, the major European markets moved notably higher on the day. While the U.K.'s FTSE 100 Index advanced by 1.5 percent, the German DAX Index and the French CAC 40 Index jumped by 2 percent and 2.2 percent, respectively.

In the bond market, treasuries came under pressure amid optimism about the signs of progress in Washington. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.5 basis points to 2.685 percent.

Looking Ahead

Trading on Friday is likely to driven by reaction to the outcome of the White House meeting between Obama and the House Republican leadership.

On the earnings front, financial giants JP Morgan (JPM) and Wells Fargo (WFC) are due to release their quarterly results before the start of trading on Friday.

by RTTNews Staff Writer

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