NEW YORK – Wall Street finally got the deal it has been waiting for.
A last-minute agreement to keep the United States from defaulting on its debt and reopen the government sent the stock market soaring Wednesday, lifting the Standard & Poor’s 500 index close to a record high.
The deal was reached just hours before a deadline to raise the nation’s $16.7 trillion debt limit. Senate leaders agreed to extend government borrowing until Feb. 7 and fund the government through Jan. 15.
The agreement follows a month of political gridlock that threatened to make America a deadbeat and derail global markets, which depend on the United States to pay its bills. American government debt is widely considered the world’s safest investment.
“We knew it was going to be dramatic, but the consequences of a U.S. default are just so severe that the base case was always that a compromise was going to be reached,” said Tom Franks, managing director at TIAA-CREF, a large retirement funds manager.
With the fiscal crisis ending in Washington, investors can turn their attention back to economic basics such as third-quarter earnings. Overall earnings at companies in the S&P 500 index are forecast to grow by 3.1 percent from a year earlier, according to data from S&P Capital IQ. That’s slower than the growth of 4.9 percent in the second quarter and 5.2 percent in the first quarter.
Wednesday, the Dow Jones industrial average climbed by 205.82 points, or 1.4 percent, to 15,373.83.
The S&P 500 gained 23.48, or 1.4 percent, at 1,721.54. That’s only 4 points below its record close of 1,725.52 on Sept. 18. The Nasdaq composite climbed by 45.42, or 1.2 percent, to 3,839.43.
The feeling among stock traders in recent days was that panicking and pulling money out of stocks could mean missing out on a rally after an agreement in Washington. Investors have also become inured to Washington’s habit of reaching budget and debt deals at the deadline.
“It’s a little bit silly in the short term for markets to go down so much on press conferences and then to go up so much on rumors,” said Brad Sorensen, director of market and sector research at the Schwab Center for Financial Research. “We’ve urged investors to pull back a little bit and look at the longer term.”
The market for U.S. Treasury bills reflected relief among bond investors. The yield on the one-month T-bill dropped to 0.13 percent, from 0.40 percent, Wednesday morning, an extraordinarily large move. The decline means that investors consider the bill, which would have come due around the time a default may have occurred, to be less risky.
The yield on the 10-year Treasury note edged down to 2.67 percent from 2.74 percent Tuesday. Yields on longer-term U.S. government debt haven’t moved as much as those on short-term debt.
Among stocks making big moves were Bank of America, up 2.2 percent, and Stanley Black & Decker, down 14.3 percent.