US stocks advance as default risk appears to ebb

Wall Street ended higher on Wednesday as investors grew more optimistic that congressional Democrats and Republicans could reach a deal to avert a government debt default.

Top US Senate Republican Mitch McConnell said his party would support an extension of the federal debt ceiling into December. This would head off a historic default that would exact a heavy economic toll.

“McConnell made some dovish comments about temporarily extending the debt ceiling,” said Jay Hatfield, founder and portfolio manager at Infrastructure Capital Advisors. “That’s going to be interpreted in the short-run as positive.”

McConnell’s offer could provide an off-ramp to a months-long standoff between President Joe Biden’s Democrats and McConnell’s Republicans, who had been expected to block a third attempt by Senate Democrats to raise the US$28.4 trillion debt ceiling.

The Dow Jones Industrial Average rose 0.3 percent to end at 34,417 points, while the S&P 500 gained 0.41 percent to 4,364.

The Nasdaq Composite climbed nearly half a percent to 14,502.

However, stocks were lower for much of the session after a strong showing of private jobs in September fueled bets the Federal Reserve could start reining in monetary stimulus soon.

“Positive labour market data comes with the implication that the Fed can tighten policy at a quicker pace. But the fact that hiring is up shouldn’t be discounted — it’s definitely a good thing in terms of recovery,” said Mike Loewengart, managing director, investment strategy at E*TRADE Financial.

Mega-cap growth stocks Amazon and Microsoft both rose more than one percent after the benchmark US 10-year Treasury yield retreated from three-month highs by early afternoon.

American Airlines Group fell 4.33 percent after Goldman Sachs cut its rating on the carrier to “sell” from “neutral”. (Reuters)