Stocks Close Sharply Higher After Senate Reaches Agreement - U.S. Commentary

(RTTNews) - Stocks moved sharply higher during trading on Wednesday, as news of an agreement in the Senate generated optimism that the latest fiscal crisis in Washington will finally be resolved. The gains on the day offset yesterday's weakness and lifted the Nasdaq to a new thirteen-year high.

After showing a strong move to the upside in early trading, the major averages remained firmly positive throughout the session. The Dow soared 205.82 points or 1.4 percent to 15,373.83, the Nasdaq jumped 45.42 points or 1.2 percent to 3,839.43 and the S&P 500 surged up 23.48 points or 1.4 percent to 1,721.54.

The initial strength on Wall Street was largely due to optimism that lawmakers in Washington would be able to strike a last minute agreement to avoid default.

Senate leaders added to the positive sentiment later in the day by announcing an agreement to fund the government through January 15th and extend the debt limit through February 7th.

The legislation includes also instructions for the Congressional leadership to name conferees to a budget conference committee.

Senate Majority Leader Harry Reid described the deal as a "historic, bipartisan agreement to reopen the government and avert a default on the nation's bills."

While votes on the agreement are still needed, House Speaker John Boehner recently indicated that Republicans won't block the Senate plan.

The focus of the negotiations shifted back to the Senate after the Republican-controlled House canceled a vote Tuesday night on a separate GOP proposal.

The House was reportedly going to vote on a short-term measure that would have kept the government from defaulting, but Boehner called off the vote when it became apparent that he would not be able to get enough votes.

Amid the focus on Washington, traders largely shrugged off a report from the National Association of Home Builders showing an unexpected drop in homebuilder confidence.

The report said the NAHB/Wells Fargo Housing Market Index dropped to 55 in October from a downwardly revised 57 in September. Economists had expected the index to come in unchanged compared to the 58 originally reported for the previous month.

NAHB Chief Economist David Crowe attributed the unexpected decrease to a spike in mortgage interest rates along with the paralysis in Washington.

Meanwhile, the Federal Reserve's Beige Book said national economic activity continued to expand at a modest to moderate pace during the reporting period of September through early October.

Sector News

Reflecting the broad based buying interest in response to the news out of Washington, most of the major sectors ended the day showing strong moves to the upside.

Biotechnology stocks posted particularly strong gains, resulting in a 3.3 percent jump by the NYSE Arca Biotechnology Index. Regeneron (REGN) surged up by 5.9 percent after reporting positive results from a late-stage trial of a new type of cholesterol drug.

Significant strength was also visible among banking stocks, as reflected by the 2.4 percent gain posted by the Dow Jones U.S. Banks Index. With the gain, the index reached its best closing level in a month.

Natural gas stocks also moved sharply higher on the day, driving the NYSE Arca Natural Gas Index up by 2 percent to a record closing high.

Telecom, commercial real estate, brokerage, and health insurance stocks also saw considerable strength, while gold stocks were among the few groups that bucked the uptrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan's Nikkei 225 Index crept up by 0.2 percent, while Hong Kong's Hang Seng Index fell by 0.5 percent.

The major European markets also ended the day mixed. While the French CAC 40 Index fell by 0.3 percent, the U.K.'s FTSE 100 Index and the German DAX Index rose by 0.3 percent and 0.5 percent, respectively.

In the bond market, treasuries showed a substantial turnaround after coming under pressure in early trading. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day down by 4.9 basis points at 2.671 percent.

Looking Ahead

Trading on Thursday is likely to be impacted by this evening's developments in Washington and whether the Senate agreement receives final approval in both houses of Congress.

The news from Capitol Hill is likely to overshadow the release of reports on weekly jobless claims and Philadelphia-area manufacturing activity.

On the earnings front, American Express (AXP), eBay (EBAY), IBM (IBM) are among the companies releasing their quarterly results after the close of today's trading.

Additionally, Goldman Sachs (GS), UnitedHealth (UNH), and Verizon (VZ) are due to release their results before the start of trading on Thursday.