U.S. Stocks Show Significant Rebound On Possible Debt Limit Extension

After coming under pressure early in the session, stocks showed a significant turnaround over the course of the trading day on Wednesday. The major averages all climbed well off their lows of the session and into positive territory.

The Dow plunged by more than 450 points in early trading but ended the day up 102.32 points or 0.3 percent at 34,416.99. The Nasdaq also climbed 68.08 points or 0.5 percent to 14,501.91, while the S&P 500 rose 17.83 points or 0.4 percent to 4,363.55.

The turnaround on Wall Street came following news Senate Minority Leader Mitch McConnell, R-Ken., has offered to allow a temporary extension of the debt limit.

In a statement, McConnell said Republicans would allow Democrats to “use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels into December.”

“This will moot Democrats’ excuses about the time crunch they created and give the unified Democratic government more than enough time to pass standalone debt limit legislation through reconciliation,” McConnell said.

He added, “Alternatively, if Democrats abandon their efforts to ram through another historically reckless taxing and spending spree that will hurt families and help China, a more traditional bipartisan governing conversation could be possible.”

The offer from McConnell comes as lawmakers are facing an October 18th deadline to raise the debt limit and avoid a potential default.

Worries about the debt limit weighed on the markets in early trading along with lingering concerns about inflation and the Federal Reserve scaling back stimulus.

On the U.S. economic front, payroll processor ADP released a report showing stronger than expected private sector job growth in the month of September.

ADP said private sector employment jumped by 568,000 jobs in September after rising by a downwardly revised 340,000 jobs in August.

Economists had expected private sector employment to climb by 428,000 jobs compared to the addition of 374,000 jobs originally reported for the previous month.

On Friday, the Labor Department is scheduled to release its more closely watched monthly employment report, which includes both public and private sector jobs.

Economists currently expect employment to increase by 488,000 jobs in September after rising by 235,000 jobs in August. The unemployment rate is expected to dip to 5.1 percent from 5.2 percent.

Sector News

Gold stocks moved sharply higher over the course of the trading session, driving the NYSE Arca Gold Bugs Index up by 2.3 percent.

The rally by gold stocks came amid a modest increase by the price of the precious metal, with gold for December delivery inching up $0.90 to $1,761.80 an ounce.

Considerable strength also emerged among utilities stocks, as reflected by the 1.4 percent advance by the Dow Jones Utility Average.

On the other hand, significant weakness remained visible among oil service stocks, resulting in a 3.5 percent nosedive by the Philadelphia Oil Service Index.

Oil service stocks moved lower along with the price of crude oil for November delivery, which tumbled $1.50 to $77.43 a barrel after a report showed an unexpected weekly increase in U.S. crude inventories.

Natural gas, steel and airline stocks also saw notable weakness on the day but climbed well off their worst levels of the session.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Wednesday. Japan’s Nikkei 225 Index slumped by 1.1 percent, while Hong Kong’s Hang Seng Index slid by 0.6 percent.

The major European markets also moved to the downside on the day. While the German DAX Index plunged by 1.5 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index slumped by 1.3 percent and 1.2 percent, respectively.

In the bond market, treasuries showed a lack of direction over the course of the session before closing roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 1.524 percent.

Looking Ahead

A report on weekly jobless claims may attract some attention on Thursday, although trading activity may be somewhat subdued ahead of the release of the monthly jobs report on Friday.

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