Lawmakers struck a last-minute deal to save the world’s largest economy from a potential default on its debt, lifting the S&P 500 and Nasdaq higher. However, dismal earnings from tech-heavyweight IBM and banking giant Goldman Sachs dragged the Dow marginally lower. After yesterday’s gains, the S&P 500 touched an all-time high. Meanwhile, the number of Americans filing for unemployment benefits declined in the previous week. Most of the sectors in the S&P 500 industry groups finished in green, led by the consumer staples and materials sectors.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street
The Dow Jones Industrial Average (DJI) fell 0.01% to close the day at 15371.65. The S&P 500 added 0.7% to finish yesterday’s trading session at 1733.15. The tech-laden Nasdaq Composite Index climbed 0.6% to end at 3863.15. The fear-gauge CBOE Volatility Index (VIX) tumbled 8.4% to settle at 13.48. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.52 billion shares, considerably lower than 2013’s average of 6.0 billion shares. Advancing stocks outnumbered the decliners. For 81% shares that advanced, only 17% declined.
After a long impasse, lawmakers managed to seal a deal to reopen the government and prevent the country from defaulting on debt. According to the deal, government agencies will be funded till January 15 and the debt limit will be extended till February 7. Federal Reserve and government employees returned to work after a partial shutdown lasting sixteen days. The bill signed by President Barack Obama also includes back pay for furloughed workers.
President Barack Obama said the partial government shutdown decelerated growth of the economy. The President said: “There are no winners here — these last few weeks have inflicted completely unnecessary damage on our economy.” "We don't know yet the full scope of the damage, but every analyst out there believes it slowed our growth,” he added.
Dallas Fed President Richard Fisher said the central bank cannot effectively fight high unemployment unless Congress and President Obama “get their act together” and fix the country’s fiscal problems. Fisher said: “Kicking the can down the road for a few months will not solve the pathology of fiscal misfeasance that undermines our economy and threatens our future.”
On the home front, the U.S. Department of Labor reported initial claims numbers. According to the report, initial claims fell 15,000 to 358,000 from the prior week’s revised figure of 373,000. This was considerably above the consensus estimate of 332,000. The four week moving average increased 11,750 to 336,500 from the previous week’s revised average of 324,750. But California continued to deal with a backlog related to computer glitches.
On the earnings front, tech-heavyweight International Business Machines Corp. (NYSE:IBM) reported dismal third quarter results. The company’s earnings came in above the Street’s estimate but revenue fell short of expectations. Following the declaration of results, shares tumbled more than 6%, hitting a two-year low, shaving of 76 points from the blue-chip index. IBM net income increased 6% to $4 billion from $3.82 billion, in the year ago period. But what disappointed investors is the fall in revenue, which declined 4% to $23.72 billion from $24.75 billion.
Financial bellwether Goldman Sachs Group Inc (NYSE:GS) also disappointed the Street with its quarterly numbers. The company’s third quarter earnings declined 2% due to a decline in its revenue from its bond trading business. Goldman Sachs third-quarter revenue tumbled 20%. Shares declined more than 2% yesterday. On the other hand, shares of eBay Inc (NASDAQ:EBAY) declined 4% after the company’s outlook fell short of expectations. The company’s third-quarter net income increased to $689 million from $597 million in the year ago period.
The materials sector was the biggest gainer among the S&P 500 industry groups and the Materials Select Sector SPDR (XLB) gained 1.3%. Stocks such as Monsanto Company (NYSE:MON), LyondellBasell Industries NV (NYSE:LYB), Air Products & Chemicals, Inc. (NYSE:APD), The Dow Chemical Company (NYSE:DOW) and FMC Corp (NYSE:FMC) added 0.3%, 1.4%, 0.7%, 0.6% and 1.1%, respectively.